S&P Betters India Growth Forecast, Economy to Contract 7.7% in Current Fiscal

S&P Global Estimates on Tuesday raised India’s growing projection for the current financial year to (-) 7.7 percent from (-) 9 percent estimated earlier on rising demand and fall COVID-19 Estimates. For the next fiscal year 2021-22, S&P projected growth to grow to 10 percent. Its revision of growth forecast for the current fiscal year reflects a faster-than-expected recovery in the September quarter.

“Growing demand and declining infection rates have moderated our expectation of COVID-19hits the Indian economy. S&P Global Ratings revised real GDP growth to a negative 7.7 percent for the year ending March 2021, from a negative 9 percent earlier, “S&P said in a statement. A faster recovery keeps more of the supply side of the economy intact and can set India up for longer-term above-average growth during the recovery phase, it added.

Indian domestic product (GDP) fell 7.5 per cent in the July-September quarter, against a contraction of 23.9 per cent in the April-June quarter. Earlier this month, Fitch Ratings also revised its growth forecast for India to (-) 9.4 percent, from (-) 10.5 percent, on signs of economic revival, while the Asian Development Bank said the economy is likely will contract 8% against the earlier forecast of a 9-percent contraction, on faster recovery. Last month, Moody’s raised India’s growth forecast to (-) 10.6 percent for the current fiscal year, from its earlier estimate of (-) 11.5 percent.

In the statement, S&P on Tuesday said India is learning to live with the virus, albeit the coronavirus a pandemic is far from defeated. However, the reported cases fell by more than half from peak levels, to around 40,000 per day. “It’s no surprise that India is following the path of most economies across Asia-Pacific experiencing a faster-than-expected recovery in manufacturing output,” said S&P Global Ratings Asia-Pacific Chief Economist Shaun Roache.

Production output was about 3.5 percent higher in October 2020 compared to the previous year’s period, while consumer sustainability output grew nearly 18%. “This recovery underscores one of the more striking aspects of the COVID-19 shock – the durability of factory supply chains. Again, as with demand, some slowdown in product momentum has emerged more recently, ”S&P said.

The agency said demand for goods – not services – is driving India’s recovery, and domestic savings have grown due to an uncertain outlook and limits of social distance. But demand is growing, it added. “If consumers can’t or won’t spend money on vacations or out-of-pocket meals, they’ll divert some of that spending to merchandise,” S&P said.

It added that sales of vehicles, both two-point and cars, have rebounded sharply since the trough seen in the first quarter of this fiscal year, although momentum has weakened recently. “External demand for goods is also strong, driven by the global trade cycle, with shipments to China especially strong.” It said the vibrancy of this economic recovery is surprising, especially given the heat of policies that support it. “We have long pointed out that the fiscal impetus (in addition to domestic demand of higher spending and lower taxes) will be only around 1 percentage point of GDP this year.

“This contrasts with the strong fiscal responses of emerging India companies, which are four or five times larger,” S&P added. The Reserve Bank of India has also been concerned about lowering its policy rate, especially as higher inflation has pushed real rates to exceptionally low levels, it said.

S&P added that it continues to see some high risks to our forecasts, especially for the financial year 2021-22. “Giving vaccines to India’s huge population will be difficult. However, the goal of inoculating 300 million people by August 2021, along with an existing high infection rate in some regions, could result in a pronounced decline in reported cases later next year.

“This would speed up the transition to a new normal,” it said. Roache said the new forecasts suggest smaller companies may survive and more workers may hold their jobs or find new ones. “The less intense and the more effective the impact of the pandemic on economic activity, the lower the permanent damage.”