Fitch cuts India growth forecast to 10%

The story: Fitch Ratings on 7th July cut India's growth forecast to 10 per cent for the current fiscal, from 12.8 per cent estimated earlier, due to s

Fitch cuts India growth forecast to 10%

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• The story: Fitch Ratings on 7th July cut India's growth forecast to 10 per cent for the current fiscal, from 12.8 per cent estimated earlier, due to slowing recovery post second wave of COVID-19. It said rapid vaccination could support a sustainable revival in business and consumer confidence, and the challenges for banking sector posed by the coronavirus pandemic have increased due to a virulent second wave in the first quarter of the financial year ending March 2022 (FY22).
• Vaccines the key: Fitch believes that rapid vaccination could support a sustainable revival in business and consumer confidence; without it, economic recovery would remain vulnerable to further waves and lockdowns. It said localised lockdowns during the second wave kept economic activity from stalling to levels similar to those during 2020, but disruption in several key business centres has slowed the recovery and dented Fitch's expectations of a rebound to pre-pandemic levels by FY22. India's economy contracted 24.4 per cent in June quarter of 2020.
• BBB - : Fitch views India's rebound potential to be better than most comparable 'BBB-' peers because it does not expect a structurally weaker real GDP growth outlook. But there is a risk that India's medium-term growth could suffer if the business and consumer activity were to experience scarring from the COVID-19 pandemic. It estimates India's medium term growth potential at about 6.5 per cent. Fitch said the low vaccination rate makes India vulnerable to further waves of the pandemic.
• Ramping up crucial: It said that only 4.7 per cent of the 1.37 billion population was fully vaccinated as of July 5, 2021, posing risks to the prospects of a meaningful and sustainable economic recovery. Indian economy contracted by 7.3 per cent in fiscal 2020-21 as the country battled the first wave of COVID, as against a 4 per cent growth in 2019-20. GDP growth in current fiscal was estimated to be in double digits initially, but a severe second wave of pandemic has led to various agencies cut growth projections. RBI too earlier this month cut India's growth forecast to 9.5 per cent for this fiscal, from 10.5 per cent.
• Others: While S&P Global Ratings lowered its growth estimate to 9.5 per cent, another US-based rating agency Moody's has projected a 9.3 per cent growth in the current fiscal ending March 2022. For 2021 calendar year, Moody's has cut growth estimate sharply to 9.6 per cent. In June, the World Bank slashed its GDP growth forecast for current fiscal ending March 2022 to 8.3 per cent, from 10.1 per cent estimated in April, saying economic recovery is being hampered by the devastating second wave of coronavirus infections. Domestic rating agency ICRA NSE 3.35 % too had projected economic growth at 8.5 per cent for this financial year, while British brokerage firm Barclays had last month cut India's growth forecast to 9.2 per cent.
• Summary: Fitch said on Indian banks that regulatory relief measures have postponed underlying asset-quality issues for now, but banks' medium-term performance will be dented without a meaningful economic recovery. It expects banks' exposure to stressed MSME and retail borrowers to rise further with the increasing relief outlay, and is likely to compel banks - especially state-owned ones - to slow regular lending in the absence of adequate core capital cushions and weak contingency buffers.

 

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