Fitch cuts India’s growth forecast from 10% to 8.7%

New Delhi, October 7

Fitch Ratings has cut India’s economic growth forecast to 8.7% for the current fiscal but raised GDP growth projection for FY23 to 10%, saying the second Covid wave delayed rather than derail the economic recovery.

APAC Sovereign Credit Overview 

• The ‘Negative’ outlook, it said, reflects uncertainty over the debt trajectory following the sharp deterioration in India's public finances due to the pandemic shock
• Fitch said it has lowered forecast for FY22 to 8.7% from 10% in June as a result of the second Covid wave
• It had in June cut the growth forecast from 12.8%

In its APAC Sovereign Credit Overview, Fitch Ratings said India’s ‘BBB-/Negative’ sovereign rating “balances a still-strong medium-term growth outlook and external resilience from solid foreign- reserve buffers, against high public debt, a weak financial sector and some lagging structural factors”.

The ‘Negative’ outlook, it said, reflects uncertainty over the debt trajectory following the sharp deterioration in India’s public finances due to the pandemic shock.

Fitch said it has further lowered India’s GDP forecast for the fiscal year ending March 2022 (FY22) to 8.7% from 10% in June as a result of the severe second virus wave.

It had in June cut the growth forecast from 12.8%.

The projections for 2021-22 fiscal compares to a contraction of 7.3% recorded in the last financial year and a 4% growth in 2019-20.

“In our view, however, the impact of the second wave was to delay rather than derail India’s economic recovery, reflected in an upward revision of our FY23 (April 2022-March 2023) GDP forecast to 10% from 8.5% in June,” it said.

High-frequency indicators point to a strong rebound in the second quarter of the current fiscal (April 2021-March 2022), as business activity has again returned to pre-pandemic levels.

Fitch, however, saw a wider fiscal deficit. “We forecast a 7.2% of GDP (excluding disinvestment) Central government deficit in FY22,” it said. The government on June 28 announced a fiscal package worth about 2.7% of GDP. Much of this consists of loan guarantees, with only 0.6% of GDP in higher on Budget spending. — PTI

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