Global rating firm Moody’s on Tuesday said it expects economic disruptions to be limited during the April-June quarter on account of the second wave of the pandemic. Accordingly, it has lowered its forecast for the current fiscal by nearly six percentage points.

These remarks have come within 24 hours from Government making GDP (Gross Domestic Products) for the January-March quarter and 12 months for the Fiscal Year 2020-21 (FY 21), along with expressing cautious optimism for the Fiscal Year 2021-22 (FY 22).

In its latest report, the agency noted that the reimposition of lockdown and behavioural changes on fear of contagion would curb economic activity. “We do not expect the impact to be as severe as during the first wave. We expect a decline in economic activity in the April-June quarter, followed by a rebound,” it said while adding that as a result of the hit from the second wave, it has revised real GDP growth forecast to 9.3 per cent from 13.7 per cent for FY 22 and to 7.9 per cent from 6.2 per cent for FY 23.

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Moody’s is not the only agency that has lowered the forecast. SBI’s Economic Research Division and ICRA, beside others, have lowered the projection. However, RBI and India Ratings have not revised as of now. At the same time, on Monday, Chief Economic Advisor K V Subramanian mentioned that the second wave peaked in May, however localized or state-wide restrictions adopted to combat its spread present some downside risk to growth in Q1 of FY:2021-22. Though he did not give any number for quarter or entire fiscal he did say, “There are reasons to expect a muted economic impact (on full fiscal).”

Moody’s said that the pandemic would leave new economic scars and deepen pre-pandemic constraints when talking about medium to long term prospects. Its growth forecasts indicate a shortfall in GDP compared with its pre-pandemic expectations of more than 10 per cent in the Fiscal Year 2023-24. “Structural inefficiencies continue to constrain growth potential and limit resilience to shocks. If implemented effectively, government reforms that target these challenges would be credit positive. However, the relatively low effectiveness of previous reforms informs our medium- to long-term growth view, it said, while expecting real GDP growth to average around 6 per cent over a longer-term.

The agency expects a slight shortfall in budgeted revenue and redirection of spending toward the response to the pandemic, and that will result in a general government (Centre’s and States’ combined) fiscal deficit of 11.8 per cent of GDP and a rise in the general government debt burden to 90.3 per cent of GDP in fiscal 2021. Debt-to-GDP will edge up to 92 per cent by fiscal 2023, largely driven by relatively slow economic growth.

GDP forecast for FY 2021-22 

(In %) 

 

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