Moody's expects India's GDP to contract 11.5% in FY21

Moody's Investors Service has joined the league of global rating agencies that have forecasted a double-digit contraction in India's gross domestic product (GDP) growth for the current financial year 2020-21 (FY21) due to the coronavirus-led lockdown disrupting economic activities. Moody's on Friday lowered India's growth estimates for the current fiscal to (-) 11.5 per cent, from (-) 4 per cent estimated earlier.

The US-based rating agency said that India's credit profile has been impacted by low growth, high debt burden and weak financial system. These risks have been exacerbated by the coronavirus pandemic, it said.

"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," Moody's said while projecting GDP estimates for this fiscal.

The agency, however, expects the economy to rebound in FY22 and clock a growth of 10.6 per cent.

Global research firms, such as Fitch Ratings and Goldman Sachs, have already downgraded economic growth forecast for FY21 after India's GDP fell sharply by 23.9 per cent during the first quarter of the current fiscal due to lockdown imposed to limit the spread of the coronavirus. While Fitch expects India's GDP to contract by 10.5 per cent in FY21 versus its earlier estimate of 5 per cent contraction, Goldman Sachs has pegged negative GDP growth of 14.8 per cent against its previous estimate of 11.8 per cent contraction in this period.

Domestic agencies State Bank of India, India Ratings and Research and CRISIL have projected contraction of 10.9 per cent, 11.8 per cent, and 9 per cent, respectively.

The rating agencies have raised concerns over rapid rise in coronavirus cases, saying that future outlook remain tilted to the downside till such time a vaccine is found and mass produced. India's COVID-19 tally has crossed 43 lakh and the nation continues to be the largest contributor to the daily global tally. The overall caseload still remains concentrated in states which have a major share in India's GDP - Maharashtra, Tamil Nadu, Karnataka and Andhra Pradesh- which together account for around 54 per cent of total confirmed cases and nearly 36 per cent of GDP. 

Indian economic output shrank by 23.9 per cent in the first quarter of FY21. This was the worst quarterly GDP numbers ever recorded since India started compiling national accounts on quarterly basis in 1996. The economy is set to enter a recessionary phase with most of the contraction expected to continue in subsequent quarters.

By Chitranjan Kumar

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