Fitch Ratings Revises India's GDP forecast, expects contraction at 9.4 Percent

Credit rating agency Fitch Ratings has raised India’s GDP forecast and is expecting a contraction of 9.4 percent in the current fiscal year to March 2021. The rating agency had earlier predicted India’s annual GDP to contract 10.5 percent on the back of faster-than-expected recovery and expected rollout of coronavirus vaccines. Now, Fitch Ratings cautioned that the vaccine rollout over the next 12 months will not reach majority of the people, given the huge logistical and distribution challenges in the heavily populated country. The revised forecast comes on the back of a sharper rebound in the second quarter. In its Global Economic Outlook, Fitch said the coronavirus-induced recession has inflicted severe economic damage and added that India needs to repair balance sheets and dedicate plans focused on long-term recovery.

“We now expect GDP to contract 9.4 percent in the fiscal year to end March 2021 (FY21) (+1.1 percentage point), followed by +11 percent growth (unchanged) and +6.3 percent growth (+0.3pp) in the following years,” the agency stated. Fitch’s softer annual GDP contraction prediction came after official figures indicated a few weeks ago that India’s GDP contracted 7.5 percent in the second quarter, which is much better than what was being expected.

The fresh projection by the rating agency compares to a

The revised forecast comes on the back of a sharper rebound in the second quarter

GDP growth of 4.2 percent in April 2019-20 and 6.7 percent annual expansion between 2015 and 2019. Earlier in September, the rating agency has sharply lowered India’s growth forecast and predicting an annual GDP contraction of 10.5 percent in 2020-21.

However, Fitch now says that Indian economy staged a sharper recovery in July-September quarter as GDP contraction softened from 23.9 percent in the first quarter to 7.5 percent.

The Reserve Bank of India (RBI) on Friday projected the Indian economy to contract 7.5 percent in FY21, shallower than 9.5 percent contraction it projected just two months ago, on the back of a host of lead indicators, suggesting sustained economic recovery. However, S&P Global Ratings last week stuck to its earlier projection of 9 percent dip in GDP in FY21, holding it awaits more proof of sustained recovery in economic activities.

While manufacturing has recovered sharply due to higher demand for some goods, the rebound in services sector activity remains a worry as COVID-19 protocols continue to hamper such businesses. “The 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 the Oxford/AstraZeneca vaccine. Distribution should allow a faster-than-expected easing of social-distancing restrictions and boost sentiment,” says Fitch Ratings. The agency further added “The need to repair balance sheets, increased caution about long-term planning, and firm closures will limit investment demand. Furthermore, increased financial-sector weakness - amid deteriorating asset quality - will hold back credit provision”.