Fitch now expects lower GDP contraction in India at 9.4% for FY21

By Administrator_ India

Capital Sands

A sharper-than-expected rebound by India’s economy in the second quarter has prompted Fitch Ratings to lower its projections for GDP contraction to 9.4 per cent in the current financial year from 10.5 per cent forecast earlier.

However, the agency warned against weak investment demand with Covid-19 affecting the economy and asset quality in the financial sector deteriorating and holding back credit growth.

Even as India pre-ordered 1.6 billion vaccine doses, it does not seem that the majority of people would get them even in 12 months, Fitch apprehended. It also said regional lockdowns are likely for few more months as virus is still spreading.

The projections for FY21 compare to a GDP growth of 4.2 per cent in 2019-20 and 6.7 per cent annual expansion between 2015 and 2019.

While the projections for FY22 remained unchanged, those for the next year was raised by 0.3 percentage points.

The failure of another bank (Lakshmi Vilas Bank) in recent weeks – the third failure in the past 16 months – underlines the challenges in the financial sector.

In September, Fitch had sharply lowered its forecast for India’s gross domestic product  to a contraction of 10.5 per cent in current fiscal 2020-21 (FY21) versus its previous estimate of 5 per cent contraction.

On Tuesday, Fitch said the Indian economy staged a sharper rebound in the July-September quarter from the coronavirus-induced recession. GDP fell 7.5 per cent year-on-year, up from -23.9 per cent in the April-June quarter.

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