Rating agency Moody’s has projected that India’s economic growth would contract by 11.5% this fiscal year due to the coronavirus pandemic. It said that the country’s credit profile is increasingly constrained by low growth, high debt burden and weak financial system.
“Mutually reinforcing risks from deeper stresses in the economy and financial system could lead to a more severe and prolonged erosion in fiscal strength, exerting further pressure on the credit profile,” said Moody’s while projecting an 11.5% contraction for the country’s this fiscal year. However, Moody’s also said that India’s economic growth will rebound to 10.6% in the 2021-22 fiscal year.
Global rating agencies and research companies have slashed their GDP growth estimates for India in FY21. While Fitch Ratings expects the country’s GDP to contract by 10.5% this fiscal versus its earlier estimate of a 5% contraction, India Ratings expects an 11.8% contraction now versus a 5.3% contraction forecasted earlier.
The sharp decline in growth will result in materially weaker government revenue. Combined with increased fiscal expenditure in response to the coronavirus outbreak, this will contribute to a wider general government fiscal deficit, which we now expect to reach 12% of GDP in fiscal 2020, it said. “Beyond the pandemic, we see a risk that growth rebounds more gradually than in other major emerging economies, and remains below our previous expectations, held back by an increasingly impaired financial system, and limited fiscal capacity to provide support,” added Moody’s.
Goldman Sachs has forecasted a sharper contraction at 14.8 percent in FY21, revised downwards from 11.8% it expected earlier. This is so far the deepest cut estimated for India’s FY21 GDP.
India’s Q1FY21 GDP numbers released by the government on August 31, revealed that the economy has suffered its worst contraction due to the debilitating impact of the coronavirus outbreak. Measures that enhance financial stability by strengthening the supervision, regulation and capitalisation of the financial sector. Commensurate action to halt and reverse the rise in the debt trajectory, even slowly, would also promote a stable outlook, Moody’s added.
