NEW DELHI: Fitch Ratings has once again cut India’s economic growth forecast to 8.7% for the current fiscal from its earlier projection of 10% on account of severe second Covid wave that has delayed the recovery.
In its APAC Sovereign Credit Overview, Fitch Ratings said India’s ‘BBB-/Negative’ sovereign rating “balances a still-strong medium-term growth outlook and external resilience from solid foreign-reserve buffers, against high public debt, a weak financial sector and some lagging structural factors”.
The ‘negative’ outlook, it said, reflects uncertainty over the debt trajectory following the sharp deterioration in India’s public finances due to the pandemic shock. In June Fitch Ratings had cut the growth forecast from 12.8%. “In our view, however, the impact of the second wave was to delay rather than derail India’s economic recovery, reflected in an upward revision of our FY23 (April 2022-March 2023) GDP forecast to 10% from 8.5% in June,” it said.
It came two days after global rating agency Moody’s Investors Service on Tuesday changed the outlook of Indian economy to “stable” from “negative”, as the downside risks from negative feedback between the real economy and financial system are receding.
On the positive note Fitch indicated strong rebound in the second quarter of the current fiscal (April 2021-March 2022) as business activity has again returned to pre-pandemic levels. Fitch also predicted a wider fiscal deficit.
“We forecast a 7.2% of GDP (excluding disinvestment) central government deficit in FY22,” it said.
The government on June 28 this year announced a fiscal package worth about 2.7% of GDP. Much of this consists of loan guarantees, with only 0.6% of GDP in higher on budget spending.
While S&P Global Ratings lowered its growth estimate to 9.5%, another US-based rating agency Moody’s has projected a 9.3% growth in the current fiscal ending March 2022. For the 2021 calendar year, Moody’s has cut the growth estimate sharply to 9.6%.