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Business News/ News / India/  Moody's projects 11.5% contraction in India's economic growth in FY21

New Delhi: Ratings agency Moody's on Friday projected 11.5% contraction in India's economic growth in the current fiscal owing to coronvirus pandemic, from (-) 4 per cent estimated earlier.

"India’s credit profile increasingly constrained by low growth, high debt burden and a weak financial system," said Moody's.

India's policymaking institutions have struggled to mitigate, contain risks exacerbated by Covid-19, the ratings agency said.

Risks from deeper stresses in Indian economy, financial system can lead to fiscal strength erosion, said Moody's.

"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," Moody's said.

However, Moody's expects India's economic growth to rebound to 10.6% in the next fiscal year (FY22) on strong base effect.

Moody's prognosis comes close on the heels of similar observations made by India Ratings, Fitch.

India's economy is expected to contract 10.5 per cent in the current fiscal before bouncing back in the next financial year, Fitch Ratings said on Tuesday.

India's gross domestic product (GDP) contracted by a massive 23.9 per cent in April-June and some agencies have predicted negative growth even during the July-September quarter of the current fiscal (April 2020 to March 2021).

"GDP should rebound strongly in 3Q20 (October-December) amid a re-opening of the economy, but there are signs that the recovery has been sluggish and uneven," Fitch said in its Global Economic Outlook (GEO).

It slashed its GDP forecast for the current fiscal to 10.5 per cent, a huge revision of (-) 5 percentage points compared to the June GEO.

The economy, it said, will recover to 11 per cent in 2021-22 largely owing to base effect and grow by 6 per cent in the following year.

Separately, India Ratings and Research, the domestic arm of rating agency Fitch, projected an 11.8 per cent contraction in the Indian economy in FY21, as against its previous projection of 5.3 per cent contraction in the current fiscal.

Indian economy had grown at 4.2 per cent in the 2019-20 fiscal.

It projected an 11.9 per cent contraction in the current quarter, followed by a (-) 6.7 per cent growth in the December quarter and 5.4 per cent in the following three months.

According to India Ratings, GDP will bounce back to 9.9 per cent growth in FY22 helped mainly by a weak base of FY21. It estimated economic loss in FY21 at 18.44 lakh crore.

In another report, Morgan Stanley projected a contraction of 5 per cent in the Indian economy in calendar year 2020 from 4.9 per cent in 2019. The economy will, however, bounce to 9.5 per cent growth in 2021, it said, predicting that a V-shaped recovery in the global economy was playing out faster than originally thought.

"By 2Q21, a global synchronous recovery should take hold, with all engines of the global economy registering strong growth," it said. "Risks to our view include a potential aggressive lockdown in the winter and uncertainty about fiscal policy."

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Updated: 11 Sep 2020, 04:40 PM IST
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