Rating agency Moody’s has cut India’s gross domestic product (GDP) forecast for FY22 to 9.3 per cent from the earlier projection of 13.7 per cent and has ruled out a sovereign rating upgrade – at least for now.
The downward revision in GDP estimates comes on the back of a second wave of Covid infections across the country, which have triggered lockdowns and mobility curbs, except for essential services.
“As a result of the negative impact of the second wave, we have revised our real, inflation-adjusted GDP growth forecast down to 9.3 per cent from 13.7 per cent for fiscal 2021,” the Moody's release said.
India is experiencing a severe second wave of coronavirus infections, which Moody's said, will slow the near-term economic recovery and could also weigh on longer-term growth dynamics. As a result, the rating agency now expects a wider general government fiscal deficit of about 11.8 per cent of GDP in FY22, compared with previous forecast of 10.8 per cent.
The combined impact of slower growth and a wider deficit, it believes, will drive the general government debt burden to 90 per cent of GDP in fiscal 2021, which will gradually rise to 92 per cent in fiscal 2023. Moody’s estimates are closer to those of IHS Markit, which had predicted Indian economy (as measured by GDP) to grow at 9.6 per cent in FY22.
Rating upgrade
That said, Moody's has ruled out a sovereign rating upgrade for India. On the contrary, it warns that the ‘self-reinforcing’ economic and financial risks would put 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.
Long term story intact
Despite the near-term headwinds, most experts - including those at Moody's - say the impact of the second wave of Covid infections will be limited.
"As of now, we expect the negative impact on economic output to be limited to the April to June quarter, followed by a strong rebound in the second half of the year," Moody's said. As a result, the rating agency has revised upwards its GDP growth forecast for India for fiscal 2022 to 7.9 per cent from 6.2 per cent. Over the longer term, we expect growth of around 6.0 per cent thereafter, it said.
Those at Nomura, too, see a limited impact of the ongoing second wave of the pandemic, but do caution against the risk to their GDP growth projections.
The second wave should remain a short-term negative economic shock, localized to Q2 2021, while the medium-term growth outlook remains stable. Nevertheless, the sharp slowdown in ultrahigh frequency indicators since April and extended restrictions does suggest downside risk to our existing GDP growth projection of 11.5 per cent y-o-y in 2021 versus -6.9 per cent in 2020," wrote Sonal Varma, managing director and chief India economist at Nomura, in a co-authored note with Aurodeep Nandi.
Dear Reader,
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.
Digital Editor
RECOMMENDED FOR YOU