GDP for FY21: Rating agencies revise growth forecast; expect deeper contraction

In a worrying sign for the Indian economy, key rating agencies have done major revision in India's full-year GDP forecast. Global rating agency Fitch Ratings has predicted India's GDP to contract by 10.5 per cent in FY21 over various economic challenges amid the coronavirus pandemic. The agency in June had predicted the country's GDP would shrink 5 per cent in FY21.

The agency said India's GDP fall was the sharpest in the world and hoped for a steady recovery in the next three quarters. It said the country's GDP could shrink 9.6 per cent in Q2 and 4.8 per cent in Q3 and 4 per cent in Q4. The agency also said that it does not expect the GDP to return to pre-COVID-19 levels before Q1 of FY22.

"India imposed one of the most stringent lockdowns worldwide in Q2 of FY20 (April-June) and domestic demand fell massively. Limited fiscal support, fragilities in the financial system, and a continued rise in virus cases hamper rapid normalisation in activity," Fitch said.

Also Read: Fitch Ratings revises India's outlook to negative from stable; retains sovereign rating 'BBB-'

Fitch also expected the global GDP to fall by 4.4 per cent in 2020, less than 4.6 per cent contraction it projected in June.

It projected the US GDP to contract 4.6 per cent in 2020, less than the 5.6 per cent decline expected in June. The downturn in the June 2020 quarter was slightly less severe than expected, recent consumption data have been particularly strong, and unemployment has fallen faster than anticipated, Fitch said.

With regard to China, Fitch has revised 2020 GDP growth forecast to 2.7 per cent from 1.2 per cent in June following the stronger-than-expected April-June outturn and continuing recoveries in investment, housing and exports through July.

Similarly, India Ratings believes the economy could contract by 11.8 per cent in the financial year against its earlier projection of 5.3 per cent. The agency said the recent government data on GDP (-23.9 per cent YoY) for the April-June quarter was worse than expected earlier. The domestic rating agency, however, expects India's GDP to rebound and expand at 9.9 per cent year-on-year (Y-o-Y) in FY22 primarily owing to the weak base of FY21. Ind-Ra estimated the economic loss in FY21 to be Rs 18.44 lakh crore.

Economic projections from Nomura and State Bank of India Research also suggest the contraction of 10.8 per cent and 10.9 per cent, respectively, in the economy in FY20.

Coronavirus-led restrictions led to India's GDP shrinking by 23.9 per cent in the first quarter of the financial year 2020-21, the lowest in 24 years. This is the worst quarterly GDP numbers ever recorded since India started compiling GDP data on a quarterly basis in 1996.

Also Read: India's GDP contraction higher than peers; V-shaped recovery underway, says Finance Ministry