Home / News / India /  Fitch revises India’s GDP forecast to -9.4%

New Delhi: Fitch Ratings on Tuesday revised upward its gross domestic product (GDP) estimate for India to a contraction of 9.4% in FY21 from -10.5% projected earlier on the back of faster-than-expected recovery and expected rollout of coronavirus vaccines. However, the rating agency cautioned that the vaccine rollout over the next 12 months will not reach majority of the people, given the huge logistical and distribution challenges in the heavily populated country.

“The outlook is brighter owing to an expected rollout of various vaccines in 2021. India has pre-ordered 1.6 billion doses including 500 million doses of the Oxford/AstraZeneca vaccine. Distribution should allow a faster-than-expected easing of social-distancing restrictions and boost sentiment. However, it seems likely that the vaccine rollout over the next 12 months will not reach the majority of the people given the huge logistical and distribution challenges in a heavily populated country like India. Regional shutdowns are likely in the next few months while the virus is still spreading," it said in its latest Global Economic Outlook.

Fitch Solutions, a sister organization of Fitch Ratings, in a separate note released on Tuesday said it expects Indian economy to contract 8.6% in FY21. It expects the festive boost to the economy to wane after November and India’s economic recovery momentum may slow thereafter. “With revenue constraints limiting scope for fiscal stimulus spending, monetary stimulus will have to do the heavy lifting over FY22 to drive India’s recovery. We flag that although we forecast a 9.5% real GDP growth in FY22, much of this will be due to low base effects in FY21, and that economic fundamentals in India will remain weak in FY22. More needs to be done by the authorities to encourage loan disbursements, especially during the ongoing economic crisis when lending risk is higher, although loan demand is likely to only recover when the economic outlook improves," it added.

Indian economy staged a faster normalization in September quarter (-7.5%) on the back of rebound in the manufacturing output from 23.9% dip in GDP registered in June quarter.

The Reserve Bank of India (RBI) on Friday projected the Indian economy to contract 7.5% in FY21, shallower than 9.5% contraction it projected just two months ago, on the back of a host of lead indicators, suggesting sustained economic recovery. However, S&P Global Ratings last week stuck to its earlier projection of 9% dip in GDP in FY21, holding it awaits more proof of sustained recovery in economic activities.

Fitch Ratings expects GDP to grow at 11% in FY22. However, it maintained that the coronavirus recession has nevertheless inflicted severe economic scarring. “The need to repair balance sheets, increased caution about long-term planning, and firm closures will limit investment demand. Furthermore, increased financial-sector weakness—amid deteriorating asset quality—will hold back credit provision. The failure of another bank in recent weeks—the third failure in the past 16 months—underlines the challenges in the financial sector," it added.

The rating agency believes retail inflation has peaked and should start to decelerate rapidly on favourable base effects and an easing of supply disruptions. “This should provide room for the RBI to cut interest rates in 2021," it added.

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