Fitch ratings forecasts 9.5% growth for Indian economy in next fiscal year

While the Indian economy has registered a slowdown due to the COVID-19 pandemic, Fitch Ratings on Wednesday predicted that it would register a growth rate of 9.5 per cent in the next fiscal year if further deterioration in the financial sector is avoided.

In its APAC Sovereign Credit Overview released that was on Wednesday, the credit rating agency forecast a 5 per cent contraction in the Gross Domestic Product (GDP) in the current fiscal.
 
"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.

"The pandemic has drastically weakened India's growth outlook and laid bare the challenges caused by a high public-debt burden," Finch Ratings added.

Last week, Moody's Investors Service slashed India's sovereign rating to 'Baa3' from 'Baa2' and short-term local-currency rating to 'P-3' from 'P-2', saying that the country's policymaking institutes will be challenged to mitigate the risks of a sustained period of sluggish growth, rising debts and deteriorating financial sector.

The agency also said that the downgrade wasn't due to the COVID-19 pandemic but amplifies the vulnerabilities in India's credit profile that were there prior to the pandemic.

Prime Minister Narendra Modi has imposed the world's largest lockdown in India on March 25 to curb the spread of COVID-19 that brought all economic activities to a standstill. While most restrictions have been lifted, the economy is likely to a long time to recover.

In its attempts to revive the economy, the Reserve Bank of India (RBI) has taken certain measures including slashing policy rates and providing liquidity through long-term repo operations to ease the monetary policy in the country.

"The government has announced stimulus measures amounting to 10 per cent of GDP, of which the fiscal component of about 1 per cent of GDP is significantly less than many of India's peers," Fitch Ratings said.