Mumbai, June 10 : The Indian Economy which has slowed down during FY 20-21 due to Corovirus pandemic is poised to bounce back with a sharp growth rate of 9.5 per cent in the next fiscal, Fitch Ratings said on Wednesday.
Fitch Ratings has forecast a 5 per cent contraction in GDP in the ongoing FY. “The Pandemic has drastically weakened India’s growth and laid down challenges caused by a huge public-debt burden,” Fitch Ratings said in its APAC Sovereign Credit Overview released on Wednesday.
However, the Economy is likely to bounce back next fiscal with a growth rate of 9.5 per cent, it said.
“After the global crisis, India’s GDP growth is likely to return to higher levels than ‘BBB’ category peers, provided it avoids further deterioration in financial sector health as a result of the pandemic,” it said.
On March 25, India resorted to a lockdown all over the country to contain Coronavirus pandemic, resulting in halt of almost all the economic activities. The lockdown was extended repeatedly though some restrictions were lifted in phases in zones with less infections. Despite the lockdown, the cases of Coronavirus have continued to rise.
In order to support the Economy and control inflation, the Reserve Bank of India eased its monetary policy by cutting down police rates with a recent 40 basis points slash in Repo rates in order to provide liquidity. As a result, Banks have also resorted to a cut in lending rates.
“The Government has announced stimulus measures amounting to 10 per cent of GDP, of which the fiscal component of about one percent of GDP is significantly less than many of India’s peers,” the rating agency said.
India’s ratio of public debt/GDP is expected to rise to 84 per cent of GDP in 20-21 up from a forecast of 71 per cent when Fitch Ratings affirmed the ‘BBB’ rating in December 2019, it said.
“This is based on our expectation of slower economic growth in FY21 and wider fiscal deficits, assuming that the Government’s fiscal response remains restrained”, the agency further said.
“The credit profile is strengthened by relative external residence stemming from solid foreign-reserve buffers, but weakened by some lagging structural factors, including governance indicators and GDP per capita.”
Citing the positives for India, Fitch Ratings said there was a greater confidence in sustained reduction in general government debt over the medium term to a level closer to ‘BBB’ peer median. There is also a possibility of higher sustained investment and growth rates without the creating of macroeconomic imbalances such as from successful structural reform implementation.
Among the negatives it said there was a material increase in the fiscal deficit, causing the gross general government debt/GDP ratio to be placed on a sustained upward trajectory. Besides there was a loose macroeconomic policy settings that cause a return of persistently high inflation and widening current-account deficits which would increase the risk of external funding stress, the agency added.
