The Economic Times
English EditionEnglish Editionहिन्दी
| E-Paper
Search
+

    Moody's raises FY21 GDP forecast for India to -10.6%

    Synopsis

    The latest fiscal stimulus package from the government, aimed at manufacturing, infrastructure, job creation, credit supply and stressed sectors of the economy, were a potential upside to Moody’s existing estimate, it said in a report on Thursday.

    Getty Images
    The global rating agency also revised upwards its forecast for growth in the coming fiscal to 10.8% from 10.6% earlier, adding that medium term growth would settle at about 6%.
    Coronavirus

    COVID-19 CASES

    Confirmed
    10,542,841
    Deaths
    152,093
    Moody’s Investors Service said India’s GDP will contract 10.6% in FY21, less than the 11.5% it had projected in September.

    The government’s latest fiscal stimulus package, aimed at manufacturing, infrastructure, job creation, credit supply and stressed sectors of the economy, provided a potential upside to the estimated growth, Moody’s said in a report on Thursday.

    However, Barclays projected a slightly deeper contraction of 6.4% for FY21 against 6% before to reflect incoming data that’s marginally weaker than expected.

    20 nov


    “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 rating company revised upwards its forecast for growth in the next financial year to 10.8% from 10.6% earlier, adding that medium-term growth would settle at about 6%.

    Barclays upgraded its forecast for FY22 to 8.5% from 7% earlier as India’s recovery was broadening into more sectors, apart from gaining traction, it said in a report on Thursday. It also revised its projection for the second quarter contraction to 8.5% from 8% earlier.

    Moody’s had earlier raised India growth projections for calendar year 2020 and 2021. Earlier this week, investment bank Goldman Sachs scaled down its FY21 GDP forecast for India to a contraction of 10.3% from 14.8% estimated in September. More private economists are expected to revise their estimates soon.

    High-frequency data over the past two months indicate that a recovery is gaining pace. Industrial production grew 0.2% in September, reversing six months of contraction. The Purchasing Managers’ Index (PMI) rose to the highest in eight-and-a-half years in September.

    “As countries have increasingly looked to greater diversification in their supply chains since the coronavirus pandemic, the timely introduction of these measures could boost India’s manufacturing industry, which contributed around 15% of GDP in 2019,” the Moody’s report said.

    Further, the wage support provided to businesses and the push to scale up local manufacturing under the production-linked incentive scheme could increase employment in India’s persistently soft labour market, it said.

    Fiscal Deficit
    Moody’s expected the combined fiscal deficit of the Centre and the states to remain at 12% of GDP in the current financial year and projected it would narrow to 7% over the medium term, compared with 6.5% in FY20.

    “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,” the report said, projecting general government debt at 89.3% of GDP in FY21.

    Given India’s mixed track record on policy-driven fiscal consolidation, a sustained increase in GDP is likely to be a major driver of any durable future fiscal consolidation, it said.
    (Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    4 Comments on this Story

    Johnson K56 days ago
    One thing is missing from all commentaries is the rise in foreign exchange at a time when there's no economic activity. When forex are rising at the rate of 4 billion every fortnight or week. How are we getting them when we are supposed to have spend a fortune on defence preparedness for winter or is it that again a joke.
    Johnson K56 days ago
    Unfortunately all rating agencies are like a weather man, frequently updating GDP forecasts left , right and centre. Finally no one has predicted them correctly, given earlier predictions, Actually no point in paying them fat six figure salaries, if there forecasts is just like our exit polls.
    Rahul Mohnot58 days ago
    Reasonable recovery of manufacturing sector in last quarter and current quarter has generated enough confidence for recovery of economy and altering earlier estimates.
    If there will be no major change in Covid-19 wave in winters , sentiments are positive and we may get normal GDP numbers Pre Covid in 4 th Quarter of FY 21 and it is likely we may end up fiscal 21 forecast even to -8.5/ -9% ! Let us hope for the best!!
    The Economic Times