Ratings agencies and investment banks on Tuesday sharply cut India’s GDP growth forecast to double-digit contraction levels for financial year 2020-21, ranging from (-)10.5 per cent to (-) 14.8 per cent. While Fitch Ratings cut its forecast for India’s growth rate to (-)10.5 per cent for FY21, India Ratings and Research slashed it to (-)11.8 per cent, and investment bank Goldman Sachs cut the country’s projected growth rate to 14.8 per cent for this fiscal.
The estimates follow the official data released by the government that showed a sharp 23.9 per cent contraction in the April-June quarter, the worst among the G20 countries, after the country’s economic growth worsened amid lockdowns against Covid-19.
“India’s GDP (gross domestic product) hit from Covid-19, the highest across major economies,” Goldman Sachs said. It expects the economy to contract 13.7 per cent for the July-September quarter and 9.8 per cent in October-December, as against the 10.7 per cent and 6.7 per cent contractions, respectively, estimated earlier.
India Ratings and Research (Ind-Ra), the India arm of Fitch Ratings, revised down its estimate to an 11.8 per cent contraction for 2020-21 from an earlier estimate of (-) 5.3 per cent. It, however, expects the economy to grow at 9.9 per cent in FY22 helped by some recovery but mainly from the low base effect of FY21.
Impact across the board
The 11.8 per cent contraction will be the sixth instance of economic contraction, the others being in FY-1958, FY-1966, FY-1967, FY-1973 and FY-1980, with the previous lowest seen at (-) 5.2 per cent in FY-1980, the rating agency said. Economic loss in FY21 is estimated to be Rs 18.44 lakh crore.
Sunil Kumar Sinha, principal economist, Ind-Ra, said that none of the quarters in FY21 are going to see a positive rate of growth.
“The base effect will certainly play out. The recovery will happen but it will not be that strong. On the real GDP basis, it is only in the fourth quarter of the next fiscal we expect that the size of the economy will be bigger than the fourth quarter of FY20,” the agency’s chief economist Devendra Kumar Pant said.
Ind-Ra now expects the central government fiscal deficit to increase to Rs 15.17 lakh crore in FY21 (FY21 (BE): Rs 7.96 lakh crore, FY20 (provisional): Rs 9.36 lakh crore), with FY20 fiscal deficit seen at 8.2 per cent.
Fitch Ratings said that the continued spread of the virus and imposition of sporadic shutdowns across the country has disrupted economic activity. “Growth should rebound strongly in the July-September period amid re-opening of the economy though there are signs that the recovery has been sluggish and uneven,” it said.
In its September update of Global Economic Outlook (GEO), Fitch said the deepest recessions were in India, the UK and Spain, nations that saw particularly large shocks in daily mobility data on visits to retail and recreation venues, and where lockdowns were stringent and long-lasting throughout 2Q20 (April-June).
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