NEW DELHI: Following its worst-ever performance in the first quarter, several rating agencies have been revising India’s growth forecast for the current financial year 2020-21 (FY21). On Friday, global ratings firm Moody’s and its domestic peer Care Ratings have cut their projections for growth in India’s gross domestic product (GDP), joining the likes of Fitch and Goldman Sachs.
While Moody’s said India’s economy will shrink 11.5 per cent in FY21 compared to July’s estimate of a 4 per cent contraction, Care Ratings noted that the economy may see a sharper contraction of 8-8.2 per cent in the current financial year compared to a decline of 6.4 per cent it had projected earlier.
“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. For FY22, however, it has forecast a 10.6 per cent growth rate, higher than 8.7 per cent projected earlier.
Moody’s also pointed out that high debt burden, low debt affordability as well as limited government efficacy in mitigating key credit challenges and rising financial sector vulnerabilities as the challenges facing India’s credit profile.
According to Care’s chief economist Madan Sabnavis, the forecast was lowered under the assumption of there being no fiscal stimulus from the government. This would imply that there would be no increase in capital expenditure (capex) during the year beyond what is provided in the Budget, he said. “The decline in GDP growth by around 8 per cent would also be associated with a decline in the gross fixed capital formation.
The same would hold for consumption growth that will be affected by lower growth in income across all categories of consumers,” Care Ratings said. It added the GDP fall of about 23.9 per cent in the first quarter was slightly higher than its expectations of 20.2 per cent.