Moody’s makes steep cut to India’s FY22 GDP growth forecast

Localised lockdowns, high case counts, and slow vaccination progress weigh heavily on India’s FY22 GDP estimates

Published: 12th May 2021 11:00 AM  |   Last Updated: 12th May 2021 11:00 AM   |  A+A-


Moody's Investors Service. (File Photo | Reuters)

By Express News Service

NEW DELHI:  With progress on India’s vaccination drive remaining largely behind schedule and an abated accumulation of new Covid-19 cases across the country, global ratings agency Moody’s has joined its peers in making a steep downwards revision to India’s FY22 GDP growth forecast. 

According to the agency, it now expects India’s GDP to grow by only 9.3 per cent in FY22, compared to its earlier prediction of 13.7 per cent. Tuesday saw Japanese ratings agency Nomura also slash India’s GDP estimates for the current fiscal. “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 (FY22),” the Moody’s said in a statement on Tuesday. 

Given the localised lockdowns, continuous high rates of cases, and slow process of vaccination, the rating agency has said the government will witness a wider fiscal deficit too, pegging a fiscal deficit of about 11.8 per cent of GDP in FY22, compared with its earlier  forecast of 10.8 per cent. 

Moody’s also warned that this second wave and a slow recovery will drive the general government debt burden to 90 per cent of GDP in fiscal 2021, which may gradually rise to 92 per cent in fiscal 2023. The rating agency has ruled out a sovereign rating upgrade, at least for now. “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,” it said, noting that wconomic and financial risks will put pressure on ratings. “As of now, we expect the negative impact on economic output to be limited to the April-June quarter, followed by a strong rebound in H2,” it noted. 

Nomura, for its part, has lowered India’s GDP growth projection to 9.8 per cent from 11.5 per cent, but said that “the second wave should remain a short-term negative economic shock, localised to Q2-2021”.


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