India's economic growth is likely to hit a 30-year low of 2 per cent in FY21 as economic recession grips the global economy following the lockdown due to coronavirus outbreak, Fitch Ratings said in its latest report on Friday. The rating agency in its previous report had projected India's GDP growth for 2020-21 at 5.1 per cent, lower than 5.6 per cent estimated in December 2019.
Fitch said that the lockdown in China will have a broad-based effect on regional manufacturing supply-chains as the coronavirus spread has now broadened to include local discretionary spending and exports. The businesses will continue to face supply-chain disruptions even as parts of China return to work.
"Fitch now expects a global recession this year and recently cut our GDP growth forecast for India to 2 per cent for the fiscal year ending March 2021 after lowering it to 5.1 per cent previously, which would make it the slowest growth in India over the past 30 years," it said. On March 20, Fitch had cut India's growth forecast to 5.1 per cent for FY 21, saying the coronavirus outbreak is likely to hit business investment and exports.
According to the agency, micro, small and medium-sized enterprises (MSMEs) and the services sectors are likely to be among the most affected due to reduced consumer spending. The non-bank financial company (NBFC) will face liquidity crunch due to limited cash buffers, and borrower's inability to repay their loans, it said.
"The challenges for India's non-bank financial institutions (NBFI) will intensify as local measures to contain the spread of the coronavirus exert pressure on their operating performance and financial profiles. Government-imposed activity restrictions in India will raise operational complications for the NBFIs, while any escalation in local infections would deal a blow to economic sentiment," Fitch added.
"These developments threaten to derail the incipient recovery in India's credit environment following the NBFI crisis in 2018-2019, and Fitch has taken negative action on our rated Indian NBFI portfolio in light of these risks," the agency said.
Last week, Moody's Investors Service sharply cut India's growth forecast for calendar 2020 to 2.5 per cent, from 5.3 per cent estimated earlier, after the government ordered a nationwide lockdown to curb the spread of the coronavirus. The International Monetary Fund (IMF) has already predicted that the world has entered a recession in the wake of a devastating impact due to the coronavirus pandemic. The agency, however, projected recovery in the global economy next year.
BY Chitranjan Kumar with PTI inputs