S&P Betters forecast growth in India, the economy will contract by 7.7% in the current budget

S&P Global Ratings on Tuesday raised India’s growth forecast for the current fiscal year to (-) 7.7% from (-) 9% estimated earlier in terms of rising demand and declining COVID-19 rates. For the next fiscal year 2021-22, S&P has estimated that growth will return to 10%. The revision of the growth forecast for the current budget reflects a faster recovery than expected in the September quarter.

“Rising demand and declining infection rates have dampened our expectations COVID-19it is an impact on the Indian economy. S&P Global Ratings revised real GDP growth to 7.7% negative for the year ended March 2021, from a negative 9% previously, “S&P said in a statement. A faster recovery keeps more intact from supply the economy and can set India for longer-than-average growth during the recovery phase, he added.

India’s gross domestic product (GDP) fell by 7.5% in the July-September quarter, compared with a 23.9% contraction in the April-June quarter. Earlier this month, Fitch Ratings revised its growth forecasts for India to (-) 9.4% from (-) 10.5% in terms of signs of economic recovery, while the Asian Development Bank said the economy is likely to contract 8% from the previous 9% contraction forecast for a faster recovery. Last month, Moody’s raised India’s growth forecast to (-) 10.6% for the current fiscal year, from its previous estimate (-) 11.5%.

In a statement, S&P said on Tuesday that India is learning to live with the virus, even if coronavirus the pandemic is far from defeated. However, reported cases fell by more than half from peak levels to about 40,000 per day. “It’s no surprise that India is following the path of most Asian-Pacific economies in terms of a faster-than-expected recovery in production output,” said Shaun Roache, chief economist at S&P Global Ratings Asia-Pacific.

Production output was about 3.5% higher in October 2020, compared to a year ago, while the production of durable goods increased by almost 18%. “This recovery highlights one of the most striking aspects of COVID-19 shock – the resilience of manufacturing supply chains. Again, as in the case of demand, a certain slowdown in the momentum of production has appeared more recently, “said S&P.

The agency said demand for goods – not services – is driving India’s recovery, and household economies have grown due to an uncertain outlook and constraints on social distancing. But demand for durable goods is growing, she added. “If consumers can’t or won’t spend money on a vacation or eating out, they’ll redirect some of that spending to goods,” S&P said.

He added that sales of both two-wheeled and car vehicles had returned sharply since the beginning of the first quarter of this budget, although the momentum had recently faded. “External demand for goods is also dynamic, driven by the global trade cycle, with particularly strong shipments to China.” He said the strength of the economic recovery was surprising, especially given the temperament of the underlying policies. “We have long stressed that the fiscal impetus (adding to domestic demand higher spending and lower taxes) will be only about 1 percentage point of GDP this year.

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

S&P added that it continues to see some upside risks to our forecasts, especially for fiscal year 2021-22. “Launching vaccines to India’s huge population will be a challenge. However, the goal of inoculating 300 million people by August 2021, combined with a high infection rate in some parts of the country, could lead to a sharp decline in reported cases later this year.

“This would speed up the transition to a new normal,” he said. Roache said the new forecasts suggest that more small businesses can survive and more workers can keep their jobs or find new ones. “The less intense the effect of the pandemic on economic activity and the more transient it is, the smaller the permanent damage.”