Moody’s on Friday said it expects India’s real gross domestic product (GDP) to contract 11.5 per cent in the financial year 2020-21 (FY21), becoming the latest agency to cut forecast after the first-quarter data showed a sharper-than-expected contraction and a sluggish recovery in indicators thereafter.

The global rating agency had earlier predicted GDP to contract 4 per cent. Domestic ratings agency CARE Ratings also cut its forecast to a contraction of 8-8.2 per cent, from 6.4 per cent. “The credit profile of India is increasingly constrained by low growth, high debt burden and a weak financial system. The country’s policymaking institutions have struggled to mitigate and contain these risks. 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 in a note on Friday. “We expect growth to rebound to 10.6 per cent in FY21, reflecting a strong statistical base effect from the low GDP levels of 2020,” Moody’s said.

The ratings agency said the decline will result in materially weaker government revenues and the fiscal deficit could be as high as 12 per cent of GDP.

“We expect the central government and states to run fiscal deficits close to 7.5 per cent and 4.5 per cent of GDP, respectively. This will drive a substantially higher debt burden, which will peak at around 90 per cent of GDP this year.”

Moody’s said as the number of daily reported Covid-19 cases continues to increase, the possibility of renewed lockdown measures presents downside risk to its forecasts.

“We see a risk that growth rebounds more gradually than in other major emerging economies, and remains below our previous expectations, held back by an increasingly impaired financial system, and limited fiscal capacity to provide support,” the report said.

CARE Ratings, meanwhile, said that its latest forecast assumes no fresh fiscal stimulus outside the Budget and measures already announced, even though there have been indications of a further round of measures. On September 8, Fitch cut India’s GDP forecast to a decline of 10.5 per cent from 5 per cent, and India Ratings, Fitch’s wholly owned Indian subsidiary, predicted a sharper fall of 11.8 per cent. Goldman Sachs, which had earlier estimated an 11.8 per cent contraction, cut it to 14.8 per cent.