Moody’s predicts India’s GDP to shrink a record 11.5% in FY21

Moody’s predicts India’s GDP to shrink a record 11.5% in FY21

Late last month, Moody’s had said that China, India and Indonesia will be the only G-20 emerging economies to witness a strong enough pickup of real GDP in the second half of 2020 and full-year 2021 to end next year above pre-coronavirus levels.

Global rating agency Moody’s on Friday forecast India’s real gross domestic product to contract by a record 11.5% in FY21 before witnessing a 10.6% expansion in the next fiscal.

With this Moody’s joins a number of established agencies in projecting a much sharper contraction (some expect it to be as much as 15%) in FY21 than assumed earlier, thanks to a stringent lockdown, although they are divided over the prospect of a meaningful rebound. While most agencies have predicted a recovery in FY22, they have cautioned that it will be mainly because of a favourable base.

Related News

It also forecast that the country’s debt-to-GDP ratio will worsen to 90.1% in FY21 from 72.2% in the last fiscal, before easing a tad to 88.5% in FY22.

Commenting on India’s credit profile, Moody’s said it’s increasingly constrained by low growth, a high debt burden and a weak financial system. “The country’s policymaking institutions have struggled to mitigate and contain these risks, which have been exacerbated by the coronavirus pandemic. Mutually reinforcing risks from deeper stresses in the economy and financial system could lead to a more severe and prolonged erosion in fiscal strength, exerting further pressure on the credit profile,” it said.

The rating agency has pointed out three credit challenges for the country: high general government debt burden and “low debt affordability”; limited government effectiveness in mitigating key credit challenges; and increasing financial sector vulnerabilities. Similarly, it has listed two points of strength as well—large and diversified economy with relatively high growth potential; large and stable domestic financing base for government debt.

Late last month, Moody’s had said that China, India and Indonesia will be the only G-20 emerging economies to witness a strong enough pickup of real GDP in the second half of 2020 and full-year 2021 to end next year above pre-coronavirus levels. It had said an economic recovery was underway, but its continuation would be closely tied to containment of the virus. “Economic data show a quick rebound in goods consumption in a number of advanced economies. However, pandemic fears will continue to hinder a complete recovery,” it had added.

Leave a Reply

Your email address will not be published. Required fields are marked *