S&P raises India's FY21 GDP growth forecast to -7.7% from -9%

S&P Global Ratings on Thursday raised India's growth forecast to (-) 7.7 per cent for the current fiscal, from its earlier estimate of (-) 9 per cent on the back of rising demand and falling COVID infection rates. The rating agency sees India's growth rebounding to 10 per cent in the next fiscal (FY22).

The American credit rating agency said that India is learning to live with the coronavirus, even though the pandemic is far from defeated and reported cases have fallen by more than half from peak levels, to about 40,000 per day.

"Rising demand and falling infection rates have tempered our expectation of COVID's hit on the Indian economy. S&P Global Ratings has revised real GDP growth to negative 7.7 per cent for the year ending March 2021, from negative 9 per cent previously," S&P said in its latest report.

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The upward revision of the country's GDP forecast indicates a faster-than-expected recovery in the economy during the September quarter. India's second quarter GDP growth has turned out to be better than anticipated, falling by just 7.5 per cent against the massive contraction of 23.9 per cent in the first quarter as the coronavirus lockdown disrupted economic activity. The better-than-expected growth was primarily due to significant rebound in the sectors like manufacturing, construction and 'trade, hotels, transport, communication & services related to broadcasting'.  

"It is no surprise that India is following the path of most economies across Asia-Pacific in experiencing a faster-than-expected recovery in manufacturing production," S&P Global Ratings Asia-Pacific chief economist Shaun Roache said.

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Manufacturing sector output was up 3.5 per cent in October 2020, compared to the year-ago period, while the output of consumer durables rose by almost 18 per cent.

"This recovery underscores one of the more striking aspects of the COVID-19 shock -- the resilience of manufacturing supply chains. Again, as with demand, some slowing of output momentum has emerged more recently," S&P said.

Based on the current trends, many research firms have upgraded India's GDP forecast for the current fiscal. While Fitch had revised its growth forecast for India to (-) 9.4 per cent, from (-) 10.5 per cent, Moody's upped to (-) 10.6 per cent against its earlier estimate of (-) 11.5 per cent.  

By Chitranjan Kumar