The estimates for the fiscal year 2021-22 are compared with a contraction of 7.3% recorded in the previous financial year and a growth of 4% in 2019-20.
Fitch Ratings has downgraded India’s economic growth forecast to 8.7% for the current fiscal, but raised the GDP growth forecast for FY13 to 10%, saying the second COVID-19 wave of economic recovery Instead of being derailed, it is delayed.
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In its APAC Sovereign Credit Overview, Fitch Ratings stated that India’s ‘BBB-/negative’ sovereign rating is “a stable medium-term growth outlook and external resilience from solid foreign reserve buffers, high public debt, a weak financial sector and balances against some backward structural factors”.
The ‘negative’ outlook, it said, reflects uncertainty over the debt trajectory following a sharp decline in India’s public finances due to the shock of the pandemic.
Fitch said it has lowered India’s GDP forecast for the fiscal year ending March 2022 (FY22) to 8.7% from 10% in June as a result of a severe second virus wave.
It had slashed the growth forecast in June to 12.8%.
The estimates for the fiscal year 2021-22 are compared with a contraction of 7.3% recorded in the previous financial year and a growth of 4% in 2019-20.
“In our view, however, the impact of the second wave was to delay rather than derail India’s economic recovery, which was an upward revision of our FY23 (April 2022-March 2023) GDP from 8.5% in June to 10%. reflected in.” Said it.
High frequency indicators point to a strong rebound in the second quarter of the current fiscal (April 2021-March 2022), as business activity has again returned to pre-pandemic levels.
Fitch, however, saw a wide fiscal deficit.
“We estimate 7.2% of GDP” [excluding disinvestment] Central government deficit in FY22,” it said.
The government announced a financial package of around 2.7% of GDP on June 28 this year. Much of this includes credit guarantees, with budget spending only exceeding 0.6% of GDP.
“However, excellent revenue performance is largely offset by higher expenditure and this should help in containing the fiscal deficit,” it added.
“The government’s plans for a broad fiscal deficit and only a gradual consolidation to reduce debt ratio put more weight on India’s ability to return to higher GDP growth in the medium term.” Inflation has been hovering around the upper end of the Reserve Bank of India’s (RBI) target inflation band for the past several months, as commodity pressures pushed up prices.
The RBI has kept its repo rate at 4% since March 2020, as it has focused on supporting the economy and considers the pressure to be temporary.
“We expect a moderation in inflation, which should allow the RBI to hold rates on hold until the next fiscal year,” Fitch said.
Listing negative sensitivities, it said continued weakness in the financial sector or lack of reform implementation would keep the general government debt/GDP ratio on the downside and substantially reduce the fiscal deficit in line with the structurally weak real GDP growth outlook. failure to reduce.
On the positive side, the implementation of a credible medium-term fiscal strategy to bring down the general government debt post-pandemic towards the level of ‘BBB’ category peers.
In addition, high sustained investment and growth rates in the medium term without creating macroeconomic imbalances, such as successful structural reform implementation and a healthy financial sector.
The RBI also in July slashed India’s growth forecast for this fiscal to 9.5%, from 10.5% previously estimated.
While S&P Global Ratings slashed its growth forecast to 9.5%, another US-based rating agency Moody’s has forecast a growth of 9.3% in the current fiscal ending March 2022. For the 2021 calendar year, Moody’s sharply cut its growth forecast to 9.6%.
In June, the World Bank slashed its GDP growth forecast for fiscal year 2012 to 8.3% from 10.1% projected in April, saying the economic impact of a devastating second wave of coronavirus infections was impeding improvement.
Domestic rating agency Icra had last month forecast economic growth at 9% for this financial year, while British brokerage firm Barclays had forecast India’s growth rate at 9.2% in May.
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