NEW DELHI: After India’s worse-than-expected GDP performance in the first quarter—tanking by 23.9 per cent—global ratings agencies have revised their forecasts for the current fiscal year.
On Tuesday agencies including Goldman Sachs, Fitch Ratings and India Ratings downgraded their growth estimates, now expecting GDP to contract in the double-digits.
Investment bank Goldman Sachs said it expects Indian economy to undergo a deeper recession in FY21 with a contraction of 14.8 per cent, worse than its earlier estimate of 11.8 per cent.
“We now forecast Q3 2020, and Q4 2020 at GDP growth of -13.7 per cent yoy and -9.8 per cent yoy, respectively. Our estimates imply that real GDP falls by 11.1 per cent in calendar year 2020, and by 14.8 per cent in FY21,” the investment bank said in a research note.
However, Goldman Sachs added that it expects a bounce back next year in the June quarter due to favorable base effects.
Fitch Ratings too lowered its forecast for the current fiscal 2020-21, expecting GDP to contract by 10.5 per cent against its earlier estimate of contraction of 5 per cent.
“The severe fall in activity has damaged household and corporate incomes and balance sheets, amid limited fiscal support. A looming deterioration in asset quality in the financial sector will hold back credit provision amid weak bank capital buffers. Furthermore, high inflation has added strains to household income,” Fitch said.
Other forecasters such as Nomura, India Ratings, HSBC have also lowered India’s growth projection.
India Ratings, the Indian subsidiary of Fitch, predicts a sharper fall of 11.8 per cent in India’s real GDP and says recovery will be visible only by third quarter of FY 22.
“Only in the third quarter of FY22, will India’s nominal GDP be bigger than that in Q4 FY20—a loss of nearly two years,” said Devendra Pant, chief economist at India Ratings.
He added that the loss of a tenth in the nominal GDP will result in poor revenue collections, and considerably enlarge the fiscal deficit, which the agency pegs at 8.2 per cent of GDP for FY21.
9% contraction in calender year 2020?
Other major ratings agencies have also revised India’s growth forecast downward. Nomura now expects India’s GDP to contract by 9.0 per cent YoY in 2020 against it’s early prediction of 5 per cent, and by 10.8 per cent in FY21 against the earlier forecast of 6.1 per cent.