Based on a sharp contraction in Indian economy and worst performance in nearly four decades in the April-June 2020 period, -23.9 per cent (YoY), global rating and research houses like Fitch and Goldman Sachs have revised their estimates for growth in India’s gross domestic product (GDP) for the current fiscal 2020-21. As against its earlier estimate of 5 per cent contraction, Fitch now expects the country’s GDP to contract 10.5 per cent in FY21. On the other hand, Goldman Sachs also forecasts a sharper contraction at 14.8 per cent against an earlier forecast of -11.8 per cent, as was reported on September 8, 2020.
The situation has not only damaged household and corporate incomes and balance sheets, amid limited fiscal support, a looming deterioration in asset quality in the financial sector will also hold back credit provision amid weak bank capital buffers.
Hopefully, a faster recovery will rebound strongly in the third quarter of calendar year 2020 (Q3-20) as the economy re-opens. Due to sluggish and uneven recovery, the PMI balances have bounced back, implying that the level of activity is still well below its pre-pandemic level in Q3-20.
FY21 GDP Forecast
As per Goldman Sachs, real GDP in the second quarter of 2021 (Q2-2021), is expected to be at +27.1 per cent YoY, and average annual GDP growth in CY21 and FY22 at 9.9 per cent and 15.7 per cent, respectively. In Q2-2021, real GDP growth is expected to bounce back sharply on a YoY basis because of favourable base effects. It is assumed that the real output in March 2022 would still be around 2 per cent below its level in March 2020.
India Ratings, a Fitch Group company, has also lowered its expectations for India’s economic growth in FY21 to -11.8 per cent from -5.3 per cent, forecasted earlier. Economically, a loss of Rs 18.44 trillion is estimated in FY21. However, GDP is expected to rebound and grow at 9.9 per cent YoY in FY22 chiefly because of the weak base of FY2.
Courtesy: Business Standard