India Ratings expects the economy to shrink 11.8% in the current fiscal year
Days after official data showed India’s GDP or gross domestic product shrank a record 23.9 per cent in the April-June period, economists have pegged overall economic contraction for the full financial year 2020-21 above 10.5 per cent. In its Global Economic Outlook report released on Monday, credit ratings major Fitch said it expects the country’s economy to contract 10.5 per cent in the current financial year, sharply lower than its earlier projection of 5 per cent. Separately, India Ratings and Research, which is a fully-owned subsidiary of the US-based Fitch Group, said it expects the economy to shrink 11.8 per cent in the ongoing fiscal year, before bouncing back in the fiscal year beginning April 2021.
Here are 10 things to know about the latest economic projections:
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After registering a contraction of 11.8 per cent in the year ending March 2021, the economy is projected to bounce back in the next fiscal year, expanding 9.9 per cent on account of the weak base of 2020-21, India Ratings and Research said on Tuesday.
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That was in stark contrast to the agency’s earlier projection of 5.3 per cent in the current fiscal year, versus growth of 4.2 per cent in the previous year.
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“All indicators, be it mobility or consumption, are pointing towards a much weaker economic recovery,” India Ratings principal economist Sunil Kumar Sinha told an online conference.
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While a second wave of infections sweeps the world, India has not yet managed to flatten the first wave, Mr Sinha added. On Monday, India surpassed Brazil as the nation with the largest number of infections outside the United States, with a tally of 4.28 million.
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India Ratings has pegged the contraction at 11.9 per cent in the ongoing quarter, which ends on September 30, and 6.7 per cent in the next quarter (October-December), and 5.4 per cent in the three-months to March 31 next year, citing the adverse impact of coronavirus pandemic.
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That is in line with the government’s view that the country’s economy is likely to register a “V-shaped” recovery, with an improvement in performance in the coming quarters, indicated by a pickup in rail freight, power consumption and tax collections.
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For the June quarter, the country’s economy registered its worst contraction since 1996, when the country started publishing quarterly figures. The April-June reading was much worse than economists’ estimates, as restrictions to curb the spread of COVID-19 severely impacted consumer spending, private investments and exports.
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Economists say India – the world’s fastest-growing large economy until a few years ago – is headed for its first full-year contraction since 1980.
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While India Ratings’ parent, Fitch, lowered its projection for India, it raised its projection for global GDP to -4.4 per cent in 2020, from -4.6 per cent previously, citing a “swifter than anticipated” recovery in economic activity following the COVID-19-related recession. However, the pace of expansion is expected to moderate soon, Fitch said.
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Fitch now expects the world’s largest economy, the United States, to shrink 4.6 per cent this year, as against its earlier forecast of 5.6 per cent. It expects China’s economy to grow 2.7 per cent in 2020, in a shift from its previous projection of 1.2 per cent. GDP in emerging markets excluding China is expected to contract 5.7 per cent now, as against 4.7 per cent previously, according to Fitch.
