Moody's has revised its forecast for India's economic growth in the current financial year downwards to 9.3 per cent from an earlier projection of 13.7 per cent. The rating agency has also denied any chances of a sovereign upgrade in near future.
With this, Moody's has joined several analysts who revised their GDP forecasts for India in the face of a second wave of COVID-19 infections in the country. India has been facing over 4 lakh new COVID-19 cases daily for the past few days on account of more infectious variants of the coronavirus. Several states have imposed lockdowns or other strict restrictions to keep the recent surge in COVID-19 cases under control.
Revising its projections for India's GDP growth, Moody's said that the second wave of COVID-19 is expected to be less disruptive than the first wave.
"The reimposition of lockdown measures will curb economic activity and could dampen market and consumer sentiment. However, we do not expect the impact to be as severe as during the first wave," Moody's said. "Unlike the first wave where lockdowns were applied nationwide for several months, the second wave "micro-containment zone" measures are more localized, targeted and will likely be of shorter duration. Businesses and consumers have also grown more accustomed to operating under pandemic conditions."
Moody's said the ecoonmic impact of recent surge in COVID-19 cases is expected to be limited to the April to June quarter, followed by a strong rebound in the second half of the year. However, the slower pace of growth will drag down near-term economic recovery and affect long-term growth dynamics. As a result, the agency revised its projection for the government fiscal deficit to 11.8 per cent of GDP in FY22, from an earlier projection of 10.9 per cent. Moody's further expects general government debt burden to rise to 90 per cent of GDP in the current fiscal, which will rise to 92 per cent in FY23.
The rating agency also ruled out any chances of a rating upgrade in the near future. Instead, it warned against self-reinforcing economic and financial risks as they may put more pressure on the rating.
"A rating upgrade is unlikely in the near future. However, we would change the outlook on India's rating to stable if economic developments and policy actions were to raise confidence that real and nominal growth will rise to sustainably higher rates than we project," Moody's said.
Earlier this week, Fitch Ratings forecasted India's real GDP to grow at 9.5 per cent in financial year 2021-22. Risks to this forecast are to the downside, as the surge in new daily COVID-19 caseloads will most likely see an extension and expansion of lockdowns, it said adding that the resurgence of COVID-19 cases exposed cracks in the Indian healthcare system.
On Monday, CRISIL estimated that India's GDP growth may slip to 8.2 per cent in financial year 2021-22 if the second wave of coronavirus pandemic in the country peaks by June-end. However, the rating agency said its 11 per cent growth estimate will still hold if the surge in COVID-19 cases and lockdowns peak by mid-May. In this scenario, the economy will return to pre-pandemic level by September 2021 quarter.