India’s economy likely to contract 9%, predicts S&P rating agency

  • India’s economy likely to contract 9%, predicts S&P rating agency

India’s economy likely to contract 9%, predicts S&P rating agency

Its previous forecast had put the economic hit from Covid at minus 5 per cent.

"One factor holding back private economic activity is the continued escalation of Covid-19", Vishrut Rana, Asia-Pacific economist for S&P Global Ratings, said in a note on Monday.

"The potential for further monetary support is curbed by India's inflation worries", said Rana. It expects GDP growth of six percent in fiscal 2022, and 6.2 percent in fiscal 2023. 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 per cent of GDP in fiscal 2020, it said. "Before the pandemic, we expected India's economy to expand 6.5 per cent in the current fiscal year". In addition, if credit quality worsens materially following the expiration of loan moratoriums, the recovery will slow. "One factor that presents potential upside to growth is the availability of a widely-distributed COVID vaccine earlier than our current estimate around mid-2021", S&P added.

"As long as the virus spread remains uncontained, consumers will be cautious in going out and spending and firms will be under strain", it said.

Domestic agencies India Ratings and Research projected contraction at 11.8%, while Crisil estimated contraction at 9%.

"With uncertainty around Covid-19 and while the demand recovery and economy pickup is gradual, the government and the central bank have no option but to wait and see how the situation pans out before making any further announcements as they're left with limited resources", says Gurpreet Sidana, the chief operating officer at Religare Broking, based in New Delhi.

The Reserve Bank of India has already cut policy rates by 115 basis points this year to 4 per cent, but rising food costs pushed inflation to 6.69 per cent in August above the upper band of its 2-6 per cent target range.

S&P's latest revision comes three months after it made its projection on India's real GDP for fiscal 2021. Last week, Moody's forecast India's GDP to shrink by 11.5% in FY21, while Fitch predicted a fall of 10.5% and Goldman Sachs 14.8%.

Global rating firms have lowered growth expectations for India. "The International Monetary Fund estimates that on average comparable stimulus measures across global emerging markets have been about 3.1% of GDP".

Google data showing mobility for retail and recreation purposes remained 40 per cent below its peak in the first week of September, compared to a 60 per cent decline when restrictions were at their height in the March-June period, S&P Global said.