India GDP forecast: Moody’s raises FY21 GDP forecast for India to -10.6%

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Moody’s Investor Service raised its FY21 GDP forecast for India to -10.6% from a contraction of 11.5% it had projected in September.

The latest fiscal stimulus package from the government, aimed at manufacturing, infrastructure, job creation, credit supply and stressed sectors of the economy, were a potential upside to Moody’s existing estimate, it said in a report on Thursday.

“The latest measures aim to increase the competitiveness of India’s manufacturing sector and create jobs, while supporting infrastructure investment, credit availability and stressed sectors. As such, they present potential upside to our current growth forecasts, a credit positive,” Moody’s said.

The global rating agency also revised upwards its forecast for growth in the coming fiscal to 10.8% from 10.6% earlier, adding that medium term growth would settle at about 6%.

The move comes barely a week after it raised its India growth projections for calendar year 2020 and 2021. Earlier this week, investment bank Goldman Sachs also raised its FY21 GDP forecast for India to a 10.3% contraction, from -14.8% in September.

On November 12, finance minister Nirmala Sitharaman announced the AtmaNirbhar Bharat 3.0 package which involved a fiscal stimulus of Rs 2.65 lakh crore according to government estimates.

“As countries have increasingly looked to greater diversification in their supply chains since the coronavirus pandemic, the timely introduction of these measures could boost India’s manufacturing industry, which contributed around 15% of GDP in 2019,” the report said.

Further, the wage support provided to businesses and the push to scale up production under the production-linked incentive scheme could increase employment in India’s persistently soft labor market, it said.

Fiscal Deficit

Moody’s expected the combined fiscal deficit of both the Centre and the states to remain wide at 12% of GDP in the current fiscal which it projected to narrow to 7% over the medium term, which was above 6.5% recording in FY20.

“Stronger nominal GDP growth over the medium term would make it easier for India’s government to address its weak fiscal position, which the coronavirus has exacerbated,” the report said, projecting general government debt at 89.3% of GDP in FY21.

Given India’s mixed track record on policy-driven fiscal consolidation, a sustained increase in GDP is likely to be a major driver of any durable future fiscal consolidation, it said.

Barclays

Barclays projected a slightly deeper contraction of 6.4% for FY21 against 6% before, to reflect marginally weaker incoming data than expected, it said in a report on Thursday. It also revised its projection for the second quarter contraction to 8.5% from 8% earlier.

“The modest downward revisions incorporate incoming data and the cycle of inventories across a variety of sectors, but broadly maintain the recovery cycle we had anticipated in August 2020,” the report said.

On the other hand, the British bank upgraded its forecast for the next fiscal to 8.5% from 7% earlier as India’s recovery was also broadening into more sectors apart from gaining traction, it said.

“The broader improvement in activity levels, as more sectors resume full operations, underpins our view that GDP will improve faster than anticipated by policy makers, especially the RBI,” Barclays said.

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