Moody’s narrows FY21 GDP outlook to 10.6% contraction

Moody’s Investors Service has revised its GDP projection for India in 2020-21 to a 10.6% contraction compared with a 11.5% drop it had estimated. The rating agency also marginally raised its forecast for 2021-22 GDP growth to 10.8%, from 10.6%.

“Consumer confidence remains relatively low amid a continued elevated number of daily new COVID-19 cases, although this has come down from a peak in September,” Moody’s wrote in a note.

“Estimates from the Centre for Monitoring Indian Economy show that unemployment remains high, although both urban and rural unemployment rates have recovered from peaks in April and May during the nationwide lockdown,” it noted. Moody’s termed the Centre’s November 12 package of stimulus measures ‘credit positive.’

Potential upside

It said they present ‘a potential upside to our current growth forecasts.’ “We currently expect India’s growth to reach 10.8% in the fiscal 2021 [ending March 2022], compared with our earlier forecast of 10.6%, and to settle around 6% in the medium term. We have revised our real, inflation-adjusted GDP forecast for fiscal 2020 to a 10.6% contraction, from a 11.5% drop previously.

“The latest measures aim to increase the competitiveness of India’s manufacturing sector and create jobs, while supporting infrastructure investment, credit availability and stressed sectors,” it said on the package estimated to be worth about $36 billion, or 1.4% of Moody’s GDP forecast for this year.

“Stronger nominal GDP growth over the medium term would make it easier for India’s government to address its weak fiscal position, which the coronavirus has exacerbated. We forecast government debt to increase to 89.3% of GDP in fiscal 2020 and decline to 87.5% in fiscal 2021, from an already elevated 72.2% in fiscal 2019,” it stated.