Downward revision in India’s GDP growth estimates by Fitch Ratings

Fitch Ratings Inc. – the American credit rating agency has lowered its forecast for the growth of the Indian economy in FY 2020-21 and is now predicting a -10.5% contraction. This is lower than the -5% estimate released by Fitch in its June report. Last week, the Government of India announced the official economic estimates for Apr-Jun (Q1) 2020 and it was revealed that in light of the strict lockdown enforced for the COVID-19 pandemic, the Indian economy contracted by a whopping -23.9% in Q1 (Apr-Jun) in terms of year on year quarterly comparison – the sharpest recorded fall ever for the economy. Fitch has also revised the estimates for the global economy – marginally up at -4.4% from the -4.6% announced in June.

With the world reeling under the onslaught of the pandemic, all major economies barring China suffered contraction in the Apr-Jun quarter with India, UK, Spain and Mexico the worst sufferers.

Q-o-Q comparison of GDP growth: Apr-June vis-a-vis Jan-Mar (source: International Monetary Fund)

Fitch has announced that it expects the Indian economy to register a strong re-bound in Q3 (Oct-Dec) but with the pandemic still raging in the country, the revival of economic activities has been sluggish and interrupted, resulting in lowering of June estimates. India’s COVID-19 caseload now stands at 4.28 million (active cases 0.88 million) – second only to the USA – although it has the lowest deaths per million among the countries with top 10 caseloads. (Source: worldometers).

Fitch’s quarter-wise GDP growth projections for India in the rest of the FY are: -9.6% in July-Sep | -4.8% in Oct-Dec | 4.0% in Jan-Mar (21). India Ratings & Research, the Indian arm of Fitch Ratings, has meanwhile projected the Indian economy to contract at -11.8% in the current fiscal – revised downwards from -5.3% announced earlier. Fitch expects the Indian economy to clock 11% growth in FY 2021-22, primarily due to the low base of the current fiscal and 6% growth in FY 2022-23. Fitch anticipates the economy to reach pre-Covid levels in Jan-Mar (Q4) of 2022.

Earlier, Nomura also reduced its estimate for the Indian economy in the current fiscal to -10.8% from its earlier projection of -6.1%. It is believed that GoI is discussing another round of fiscal stimulus at present.

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