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Moody’s revises up India’s GDP growth forecast of FY21

  • Uncategorized
  • Dec 02, 2020

Moody’s Investors Service on Thursday revised its forecast for India’s real gross domestic product (GDP) for the current fiscal, saying it expects the economy to shrink 10.5%, less than the 11.5% contraction forecast earlier. Note that this comes days after the union government announced the third round of economic stimulus. The global rating agency said the Rs 2.65 trillion stimulus package announced by the government last week, focused on increasing the competitiveness of India's manufacturing sector, and access to credit aimed at nurturing the economic recovery is credit positive. Also, the broadening of the production-linked incentive (PLI) scheme to 10 sectors is expected to increase the competitiveness of the manufacturing sector, and generate jobs.

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 rating agency, however, said consumer confidence in India continues to remain relatively weak amid a relentless rise in fresh coronavirus cases. For the financial year 2021-22, Moody’s has revised upwards India’s GDP growth forecast to 10.8% from 10.6% projected earlier. “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; we forecast government debt to increase to 89.3% of GDP in fiscal 2020 and decline to 87.5% in fiscal 2021, from an already elevated 72.2% in fiscal 2019.

The country's mixed track record on revenue-raising measures lowers prospects for fiscal policy-driven budget consolidation. A sustained increase in GDP growth would therefore likely be a major driver of any durable future fiscal consolidation," the agency added. Moody’s expects fiscal deficit to widen, reaching around 12% of GDP, with some upside risk, in the current financial year and narrowing to about 7% of GDP over the medium term, and above the deficit of 6.5% of GDP in 2019. Worth adding here is that the official data showed that the Centre has exhausted 115% of its budgeted fiscal deficit of 2020-21 by September as revenue receipts fell and Capex shrank. The forecast has been revised by keeping in mind the latest stimulus that prioritizes manufacturing and job creation and focuses on longer-term growth. Moody’s said that the forecast has been revised by keeping in mind the latest stimulus that prioritizes manufacturing and job creation, and focuses on longer-term growth. It added that 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. Moody’s has also raised the growth forecast for the next fiscal year FY 2021-22 from 10.6 percent to 10.8 percent. It is to be noted that the government had last week announced a fresh fiscal package amounting to Rs 2.7 lakh crore.