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Fitch cuts India GDP growth forecast to 4.6% for FY21
31 Mar '20
3 min read
Pic: lakshmiprasada S / Shutterstock.com
Fitch Solutions recently cut its estimate for India's gross domestic product (GDP) growth in fiscal 2020-21 to 4.6 per cent from the earlier 5.4 per cent due to weaker private consumption and contraction in investment amid the COVID-19 outbreak. The growth estimate for the fiscal compares with a 4.9 per cent forecast for the current 2019-20 that ends today.
Despite the ₹1.7 lakh crore economic package announced last year, private consumption growth will come under strong headwinds over the coming months, it predicted.
The lower growth estimate, it said, is "due to weaker private consumption and a contraction in investments, although a higher net exports contribution and higher government consumption should help blunt the economic blow from COVID-19," a news agency cited the rating agency as saying.
Risks to the forecast are still on the downside, given that the outbreak in India, as suggested by its relatively low number of reported COVID-19 infections, appears to be at its preliminary stage.
"A weak healthcare system, with already stretched medical facilities, will also inhibit India's ability to 'flatten the infection curve', which informs our view for a sharp negative impact to the economy over H1FY2020/21 at least," Fitch said. "As such, we expect the outbreak to worsen significantly over the coming months."
The company now expects private consumption to come under pressure and also for investments to register a full-year contraction. "That said, a higher net exports contribution, due to a sharper imports contraction versus exports, and higher government consumption will aid to cushion the blow," it said.
It revised private consumption growth forecast to 3 per cent, from 4.5 per cent previously, putting it far below the 7 per cent average over the past decade.
Movement as well as job restrictions due to the lockdown and thereby income losses will also inhibit an increase in private consumption for many over the coming months. This has already had a disproportionately impact on the poor working in the cities, forcing many to return home in rural areas, Fitch said.
While the government's direct cash transfers should ideally help ease the financial burden for many of the poor, Fitch highlighted implementation challenges, which would hamper the stimulus' effectiveness. Direct cash transfers to the bank accounts also present some challenges.
It expects investments to contract by 2.5 per cent, versus a 3.7 per cent growth earlier.
"An uncertain demand outlook, both externally and domestically, due to a global economy set to go into a recession and a fall in purchasing power domestically due to income loss, will see businesses defer their investment plans," Fitch said.
It said the fiscal stimulus announced on March 26 is grossly insufficient to lift economic growth, and as such, expect additional spending to be announced over the coming months.
"To provide context, India's stimulus package so far only represents about 0.8 per cent of GDP, which pales in comparison when compared with other countries such as the US and Singapore, at 10 per cent and 11 per cent of their respective GDP so far," it added.
Despite the ₹1.7 lakh crore economic package announced last year, private consumption growth will come under strong headwinds over the coming months, it predicted.
The lower growth estimate, it said, is "due to weaker private consumption and a contraction in investments, although a higher net exports contribution and higher government consumption should help blunt the economic blow from COVID-19," a news agency cited the rating agency as saying.
Risks to the forecast are still on the downside, given that the outbreak in India, as suggested by its relatively low number of reported COVID-19 infections, appears to be at its preliminary stage.
"A weak healthcare system, with already stretched medical facilities, will also inhibit India's ability to 'flatten the infection curve', which informs our view for a sharp negative impact to the economy over H1FY2020/21 at least," Fitch said. "As such, we expect the outbreak to worsen significantly over the coming months."
The company now expects private consumption to come under pressure and also for investments to register a full-year contraction. "That said, a higher net exports contribution, due to a sharper imports contraction versus exports, and higher government consumption will aid to cushion the blow," it said.
It revised private consumption growth forecast to 3 per cent, from 4.5 per cent previously, putting it far below the 7 per cent average over the past decade.
Movement as well as job restrictions due to the lockdown and thereby income losses will also inhibit an increase in private consumption for many over the coming months. This has already had a disproportionately impact on the poor working in the cities, forcing many to return home in rural areas, Fitch said.
While the government's direct cash transfers should ideally help ease the financial burden for many of the poor, Fitch highlighted implementation challenges, which would hamper the stimulus' effectiveness. Direct cash transfers to the bank accounts also present some challenges.
It expects investments to contract by 2.5 per cent, versus a 3.7 per cent growth earlier.
"An uncertain demand outlook, both externally and domestically, due to a global economy set to go into a recession and a fall in purchasing power domestically due to income loss, will see businesses defer their investment plans," Fitch said.
It said the fiscal stimulus announced on March 26 is grossly insufficient to lift economic growth, and as such, expect additional spending to be announced over the coming months.
"To provide context, India's stimulus package so far only represents about 0.8 per cent of GDP, which pales in comparison when compared with other countries such as the US and Singapore, at 10 per cent and 11 per cent of their respective GDP so far," it added.
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