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COVID-19 impact: S&P expects economy to shrink by 9% in FY21

Retail inflation data, due later in the day, is likely to have stayed above the Reserve Bank of India's medium-term target range in August for the fifth straight month

twitter-logoReuters | September 14, 2020 | Updated 14:13 IST
COVID-19 impact: S&P expects economy to shrink by 9% in FY21
S&P's latest revision comes three months after it made its projection on India's real GDP for fiscal 2021

S&P Global Ratings said on Monday that it was expecting India's economy to shrink by 9% in the fiscal year ending March 31, 2021, larger than its previous estimate of a 5% contraction, as the country reels under the impact of the COVID-19 pandemic.

The ratings firm joins a host of major banks and ratings agencies, which have made deep cuts to their forecasts on India's economy following a 23.9% contraction in April-June, as consumer spending, private investments and exports collapsed during one of the world's strictest lockdowns.

S&P's latest revision comes three months after it made its projection on India's real GDP for fiscal 2021. "While India eased lockdowns in June, we believe the pandemic will continue to restrain economic activity ... As long as the virus spread remains uncontained, consumers will be cautious in going out and spending and firms will be under strain," S&P said in a note.

"The potential for further support monetary support is curbed by India's inflation worries," said Vishrut Rana, Asia-Pacific economist for S&P Global Ratings. The Reserve Bank of India has cut policy rates by 115 basis points so far this year. Retail inflation data, due later in the day, is likely to have stayed above the Reserve Bank of India's medium-term target range in August for the fifth straight month, according to a Reuters poll.

India's high deficit also limits the scope for further fiscal stimulus, S&P added. It expects GDP growth of 6% in fiscal 2022 and 6.2% in fiscal 2023. Moody's on Friday said it was expecting India's real GDP to contract by 11.5% in fiscal 2020.

Also read: GST Council meet postponed; to be held on October 5 now; here's why

Also read: Retail inflation will come down soon as lockdowns ease: CEA

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