Moody's lowers FY22 growth forecast to 9.3 per cent

Our Bureau New Delhi | Updated on May 11, 2021

The revision is in line with Finance Ministry’s report, highlighting the second Covid wave has posed a downside risk to economic activity in Q1FY22.

Global economic research and sovereign rating firm Moody’s on Tuesday lowered India’s growth forecast to 440 basis points per cent for FY 2021-22. However, it has upped the estimate for FY 2022-23 to 170 basis points. (One hundren basis points mean one percentage point).

“The negative impact on economic output to be limited to the April to June quarter, followed by a strong rebound in the second half of the year. As a result of the negative impact of the second wave, we have revised our real, inflation-adjusted GDP growth forecast down to 9.3 per cent from 13.7 per cent for fiscal 2021 (2021-22) and to 7.9 per cent from 6.2 per cent in fiscal 2022 (2022-23),” the agency said in its latest update. Further, it added that we expect growth of around 6 per cent thereafter over the longer term.


This revision in line with a recent Finance Ministry’s report which highlighted that the second wave of Covid-19 has posed a downside risk to economic activity in the first quarter of FY 2021-22. However, there are reasons to expect a muted economic impact as compared to the first wave. This report did not change the projection of 11 per cent growth for the current fiscal. Reserve Bank of India (RBI) too has not revised its projection of 10.5 per cent. However, CRISIL has revised its forecast downwards to 8.2-9.8 per cent with two different scenarios of second wave’s peaks.

Meanwhile, Moody’s said that the reimposition of lockdown measures will curb economic activity and could dampen market and consumer sentiment. However, “we do not expect the impact to be as severe as during the first wave. Unlike the first wave where lockdowns were applied nationwide for several months, the second wave ‘micro-containment zone’ measures are more localized, targeted and will likely be of shorter duration,” it said while adding that businesses and consumers have also grown more accustomed to operating under pandemic conditions.

Talking about vaccination, it noted that people in the age group of 18-44 have started getting jabs from May 1. However, it highlighted that, as of early May, only around 10 per cent of the country's population had received at least one dose of the vaccine. Meanwhile, a shortage of vaccines and logistical difficulties in reaching a large rural population (about two-thirds of the population) complicate the vaccine rollout. The international community has recently contributed to India's vaccine efforts with increased medical and vaccine supplies to help address shortfalls. “The spread of the virus and the rate of vaccinations will have a direct impact on economic outcomes,” the report said.

On the fiscal front, the agency feels the second wave could have marginal impact on the revenue with some re-prioritisation of expenditure on account of the enhanced need of healthcare sector. “We now expect a wider general government fiscal deficit of about 11.8 per cent of GDP in fiscal 2021, compared with our previous forecast of 10.8 per cent and an estimated 14 per cent in fiscal 2020,” the agency said.

Published on May 11, 2021

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