Covid-19 damages India's economic growth, seen at mere 0.8% in FY21: Fitch

Fitch revises down the country's economic growth forecast to a mere 0.8% in FY21.

May 28, 2020 01:05 IST India Infoline News Service

With the extended nationwide lockdown period and rapid increase in Coronavirus cases, there seems to be no relief in India's economy even though few measures have been relaxed. The Covid-19 pandemic is expected to bring India's economic growth at a mere 0.8% in the current financial year FY21.

The global rating agency and advisor, Fitch, has once again revised its forecast for the Indian economy and it does not seem to get any better, on the contrary, the worst-case scenario being formed.

In its latest note, Fitch revises down the country's economic growth forecast to a mere 0.8% in FY21 indicating the impact of the coronavirus pandemic and official efforts to contain it.

The latest forecast is even lower than the previous forecast of 5.6% prior to the outbreak.

Currently, India is under its fourth phase of the lockdown with few relaxations in non-containment zones and businesses. The latest lockdown is supposed to end on May 31, 2020, however, with the continuous rise in Covid-19 cases further development will be keenly watched.

In FY21, Fitch expects India’s ratio of public debt/GDP to rise to over 77% of GDP which is higher from the previous forecast of 71% in December last year.

The rating agency says, "This is based on our expectation of slower economic growth in FY21 and wider fiscal deficits, assuming that the government’s fiscal response remains restrained."

Fitch adds in the note, "Risks to the medium-term economic outlook will increase if India experiences another bout of stress in its financial system. The current slowdown will reverse at least some of the improvement of the past few years in banking-sector health. Prolonged financial-sector weakness could weigh on credit growth, economic output, investment and productivity."

However, Fitch has once again affirmed India’s rating at ‘BBB-’ with a Stable Outlook in December 2019, before the onset of the coronavirus.

On the fiscal front, Fitch believes further deterioration in the fiscal outlook as a result of lower growth or fiscal easing could pressure the sovereign rating in light of the limited fiscal headroom India had when it entered this crisis.

"The government may tighten fiscal policy again once the pandemic is under control, but India's record of meeting fiscal targets and implementing fiscal rules has been mixed in recent years, which will colour our assessment of any official commitment to tighten fiscal policy over the medium term," Fitch added.

A rebound is expected in FY22. Fitch says, "We expect growth to rebound to 6.7% in FY22, but there is a risk that the crisis could amplify fiscal and financial sector strains and hurt the country’s growth prospects over the medium term."

As of today, India has 158,000 positive Covid-19 cases with 4,531 deaths. The rate of recovery is higher at 67,692 cases. 

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