Fitch revises India GDP forecast, sees contraction at 9.4 pc

Fitch Ratings on Tuesday raised India's GDP forecast to -9.4 per cent in current fiscal year to March 2021 from a previously projected contraction of 10.5 per cent after ecomy std a sharper rebound in second quarter. In its Global Ecomic Outlook, Fitch said coronavirus recession has inflicted severe ecomic scarring and country needs to repair balance sheets and increase caution about long-term planning.

"We w expect GDP to contract 9.4 per cent in fiscal year to end March 2021 (FY21) (+1.1 percent point), followed by +11 per cent growth (unchanged) and +6.3 per cent growth (+0.3pp) in following years," rating ncy said.

projections compare to a GDP growth of 4.2 per cent in 2019-20 (April 2019 to March 2020) fiscal and 6.7 per cent annual expansion between 2015 and 2019. In September, Fitch had sharply lowered its forecast for India's gross domestic product (GDP) to a contraction of 10.5 per cent in current fiscal 2020-21 (FY21) versus its previous estimate of 5 per cent contraction. On Tuesday, Fitch said Indian ecomy std a sharper rebound in July-September quarter from coronavirus-induced recession. GDP fell 7.5 per cent year-on-year, up from -23.9 per cent in April-June quarter.

" rebound in activity was especially sharp in manufacturing sector: output reached its pre-pandemic level in 3Q20 (July-September), and manufacturing PMI hints at furr gains," it said adding that manufacturing is buoyed by strong demand for autos and pharmaceutical products, in particular.

rebound in services sector was more muted amid continued social distancing, with containment measures scaled back only gradually. " outlook is brighter owing to an expected rollout of various vaccines in 2021. India has pre-ordered 1.6 billion doses including 500 million doses of Oxford/AstraZeneca vaccine. Distribution should allow a faster-than-expected easing of social-distancing restrictions and boost sentiment," it said.

However, it seems likely that vaccine rollout over next 12 months will t reach majority of people given huge logistical and distribution challenges in a heavily populated country like India, Fitch said. Regional shutdowns are likely in next few months while virus is still spreading. coronavirus recession, it said, has neverless inflicted severe ecomic scarring.

" need to repair balance sheets, increased caution about long-term planning, and firm closures will limit investment demand. Furrmore, increased financial-sector weakness – amid deteriorating asset quality – will hold back credit provision," rating ncy said.

failure of ar bank in recent weeks – third failure in past 16 months – underlines challenges in financial sector. Consumer prices have continued to accelerate in recent months, buoyed by lingering supply disruptions. This, Fitch said, has deterred Reserve Bank of India (RBI) from resuming its easing cycle.

"We think inflation has w peaked and should start to decelerate rapidly on favourable base effects and an easing of supply disruptions. This should provide room for RBI to cut interest rates in 2021," it said.

Fitch saw consumer price inflation at 4.9 per cent in current fiscal, which would ease to 3.5 per cent in next. For global ecomy, it projected a less severe decline in GDP at -3.7 per cent in 2020 compared to -4.4 per cent in September projection. It also revised up its annual world GDP growth forecast for 2021, but only modestly, to 5.3 per cent (from 5.2 per cent), as deteriorating outlook in very near term partially offsets a stronger outlook from sector half of year. "We are w significantly more optimistic for 2022, as we assume vaccine rollout will facilitate a material easing in social distancing," it said.