India forecast to grow at 9.5% next year; NITI Aayog VC Rajiv Kumar lists Fitch positives

After a COVID-19 induced lockdown of over two months leading to a contraction in the current financial year, the Indian economy is expected to rebound with a sharp growth rate of 9.5 per cent next year, says the Fitch Ratings. Citing the report of Fitch Ratings, Vice-Chairman of NITI Aayog Rajiv Kumar took to Twitter to apprise on the same. It is important to note here that 9.5% will come against a lower base given the Covid crisis in the ongoing fiscal.

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Fitch Ratings had earlier forecast a 5 per cent contraction in the GDP in the ongoing financial year. "The pandemic has drastically weakened India's growth outlook and laid bare the challenges caused by a high public-debt burden," Fitch Ratings said in its APAC Sovereign Credit Overview released on Wednesday. However, after the brunt of the pandemic is diluted, India's economy is likely to bounce back, Fitch said. 

"After the global crisis, India's GDP growth is likely to return to higher levels than 'BBB' category peers, provided it avoids further deterioration in financial sector health as a result of the pandemic," it said forecasting a 9.5 per cent real GDP growth next year.

To support the economy, the Reserve Bank of India (RBI) has eased monetary policy by cutting policy rates and providing liquidity through long-term repo operations. Prudential requirements for banks have also been eased to free up liquidity for lending.

"The government has announced stimulus measures amounting to 10 per cent of GDP, of which the fiscal component of about 1 per cent of GDP is significantly less than many of India's peers," the rating agency said.

General government debt already stood at 70 per cent of GDP in 2019-20, well above the 'BBB' rating median of 42 per cent. India's ratio of public debt/GDP is expected to rise to 84 per cent of GDP in 2020-21 – up from a forecast of 71 per cent when Fitch Ratings affirmed the 'BBB-' rating in December 2019.

However, despite all odds, the Ratings agency listed out some positives for India saying, "there was greater confidence in a sustained reduction in general government debt over the medium term to a level closer to the 'BBB' peer median. Also, there is a possibility of higher sustained investment and growth rates without the creation of macroeconomic imbalances, such as from successful structural reform implementation."

(With PTI inputs)

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