New Delhi: Fitch Ratings has downgraded India’s economic growth forecast to 8.7 per cent for the current fiscal, but raised its GDP growth forecast for FY13 to 10 per cent, saying the second Covid-19 pandemic The wave has delayed rather than derailed the economic recovery.
In its APAC Sovereign Credit Overview, Fitch Ratings stated that India’s ‘BBB-/negative’ sovereign rating is “a stable medium-term growth outlook and external resilience from solid foreign reserve buffers, high public debt, a weak financial sector and balances against. some backward structural factors”.
The ‘negative’ outlook, it said, reflects uncertainty over the debt trajectory following a sharp decline in India’s public finances due to the shock of the pandemic.
Fitch said it has lowered India’s GDP forecast for the fiscal year ending March 2022 (FY22) to 8.7 per cent from 10 per cent in June as a result of a severe second virus wave.
It had cut its growth forecast in June from 12.8 per cent.
The estimates for the fiscal year 2021-22 are compared with a contraction of 7.3 per cent recorded in the previous financial year and a growth of 4 per cent in 2019-20.
“In our view, however, the impact of the second wave was to delay rather than derail India’s economic recovery, which in our FY23 (April 2022-March 2023) GDP estimates from 8.5 per cent to 10 per cent in June reflected in the growth of the
High frequency indicators point to a 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, however, saw a wide fiscal deficit.
“We have estimated a deficit of 7.2 per cent of the central government’s GDP (excluding disinvestment) in FY22,” it said.
The government had announced a fiscal package of around 2.7 per cent of GDP on June 28 this year. Much of this includes credit guarantees, with budget spending only exceeding 0.6 percent of GDP.
“However, the stellar revenue performance largely offsets the higher spending and should help in containing the fiscal deficit,” it said.
“The government’s plans for a broad fiscal deficit and only a gradual consolidation to reduce debt ratio put more weight on India’s ability to return to higher GDP growth in the medium term.”
Inflation has been hovering around the upper end of the Reserve Bank of India’s (RBI) target inflation band for the past several months, as commodity pressures pushed up prices.
The RBI has kept its repo rate at 4 per cent with effect from March 2020, as it has focused on supporting the economy and considers the pressure to be temporary.
“We expect a moderation in inflation, which should allow the RBI to hold rates until the next fiscal year,” Fitch said.
Listing negative sensitivities, it said continued weakness in the financial sector or lack of reform implementation would keep the general government debt/GDP ratio on the downside and substantially reduce the fiscal deficit in line with the structurally weak real GDP growth outlook. failure to reduce.
On the positive side, the implementation of a credible medium-term fiscal strategy to bring down the general government debt post-pandemic towards the level of ‘BBB’ category peers.
In addition, high sustained investment and growth rates in the medium term without creating macroeconomic imbalances, such as successful structural reform implementation and a healthy financial sector.
The RBI also in July lowered India’s growth forecast for the current fiscal to 9.5 per cent from 10.5 per cent estimated earlier.
While S&P Global Ratings cut its growth forecast to 9.5 per cent, another US-based rating agency Moody’s has forecast a growth of 9.3 per cent in the current fiscal ended March 2022. For the 2021 calendar year, Moody’s sharply lowered the growth forecast to 9.6. Percent.
In June, the World Bank lowered its GDP growth forecast for FY22 to 8.3 percent from 10.1 percent projected in April, saying economic recovery was hampered by a devastating second wave of coronavirus infections .
Domestic rating agency Icra had last month projected economic growth at 9 per cent for the current fiscal, while British brokerage firm Barclays had projected India’s growth rate at 9.2 per cent in May.
In its APAC Sovereign Credit Overview, Fitch Ratings stated that India’s ‘BBB-/negative’ sovereign rating is “a stable medium-term growth outlook and external resilience from solid foreign reserve buffers, high public debt, a weak financial sector and balances against. some backward structural factors”.
The ‘negative’ outlook, it said, reflects uncertainty over the debt trajectory following a sharp decline in India’s public finances due to the shock of the pandemic.
Fitch said it has lowered India’s GDP forecast for the fiscal year ending March 2022 (FY22) to 8.7 per cent from 10 per cent in June as a result of a severe second virus wave.
It had cut its growth forecast in June from 12.8 per cent.
The estimates for the fiscal year 2021-22 are compared with a contraction of 7.3 per cent recorded in the previous financial year and a growth of 4 per cent in 2019-20.
“In our view, however, the impact of the second wave was to delay rather than derail India’s economic recovery, which in our FY23 (April 2022-March 2023) GDP estimates from 8.5 per cent to 10 per cent in June reflected in the growth of the
High frequency indicators point to a 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, however, saw a wide fiscal deficit.
“We have estimated a deficit of 7.2 per cent of the central government’s GDP (excluding disinvestment) in FY22,” it said.
The government had announced a fiscal package of around 2.7 per cent of GDP on June 28 this year. Much of this includes credit guarantees, with budget spending only exceeding 0.6 percent of GDP.
“However, the stellar revenue performance largely offsets the higher spending and should help in containing the fiscal deficit,” it said.
“The government’s plans for a broad fiscal deficit and only a gradual consolidation to reduce debt ratio put more weight on India’s ability to return to higher GDP growth in the medium term.”
Inflation has been hovering around the upper end of the Reserve Bank of India’s (RBI) target inflation band for the past several months, as commodity pressures pushed up prices.
The RBI has kept its repo rate at 4 per cent with effect from March 2020, as it has focused on supporting the economy and considers the pressure to be temporary.
“We expect a moderation in inflation, which should allow the RBI to hold rates until the next fiscal year,” Fitch said.
Listing negative sensitivities, it said continued weakness in the financial sector or lack of reform implementation would keep the general government debt/GDP ratio on the downside and substantially reduce the fiscal deficit in line with the structurally weak real GDP growth outlook. failure to reduce.
On the positive side, the implementation of a credible medium-term fiscal strategy to bring down the general government debt post-pandemic towards the level of ‘BBB’ category peers.
In addition, high sustained investment and growth rates in the medium term without creating macroeconomic imbalances, such as successful structural reform implementation and a healthy financial sector.
The RBI also in July lowered India’s growth forecast for the current fiscal to 9.5 per cent from 10.5 per cent estimated earlier.
While S&P Global Ratings cut its growth forecast to 9.5 per cent, another US-based rating agency Moody’s has forecast a growth of 9.3 per cent in the current fiscal ended March 2022. For the 2021 calendar year, Moody’s sharply lowered the growth forecast to 9.6. Percent.
In June, the World Bank lowered its GDP growth forecast for FY22 to 8.3 percent from 10.1 percent projected in April, saying economic recovery was hampered by a devastating second wave of coronavirus infections .
Domestic rating agency Icra had last month projected economic growth at 9 per cent for the current fiscal, while British brokerage firm Barclays had projected India’s growth rate at 9.2 per cent in May.
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