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Moody's raises FY21 India growth forecast to -10.6%

23 Nov '20

2 min read

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The latest stimulus measures by the Indian government shifted focus back to longer-term growth by paying attention to manufacturing and job creation, according to global rating agency Moody’s Investor Service, which recently predicted a 10.6 per cent contraction in the country’s real gross domestic product (GDP) in fiscal 2020-21 against a 11.5 per cent drop forecast earlier.

The agency also revised up its projection for real growth for the next fiscal to 10.8 per cent from 10.6 per cent, indicating a stronger rebound, aided by a favourable base effect. In the medium term, though, the growth rate will be around 6 per cent, it was quoted as saying by a new agency.

“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. As such, they present potential upside to our current growth forecasts, a credit positive,” Moody’s said.

“The country’s mixed track record on revenue-raising measures lowers prospects for fiscal policy-driven budget consolidation. A sustained increase in GDP growth would therefore likely be a major driver of any durable future fiscal consolidation,” Moody’s, however, stated.

The rating agency reckons that stronger nominal GDP growth over the medium term would make it easier for the government to address its weak fiscal position, which the coronavirus has exacerbated. Moody’s forecast general government (the centre as well as states) debt to rise to 89.3 per cent of nominal GDP in the current fiscal and decline to 87.5 per cent in fiscal 20201-22.

Even before the pandemic struck, India’s debt was already at an elevated level of 72.2 per cent of GDP in 2019-20.

The agency also said that the wage support provided to businesses under the latest measures and the push to scale up production through the production-linked incentive scheme could increase employment in India’s persistently soft labour market.

Fibre2Fashion News Desk (DS)

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