S&P cuts India’s FY22 growth forecast to 9.5%

‘Further waves pose a risk to outlook’

S&P Global Ratings on Thursday cut India’s growth forecast for the current fiscal to 9.5%, from 11% earlier, and warned of risk to the outlook from further waves of the COVID-19 pandemic.

The agency lowered the growth outlook saying that a severe second COVID-19 outbreak in April and May led to lockdowns imposed by States and sharp contraction in economic activity.

“We forecast a growth of 9.5% this fiscal year from our March forecast of 11%,” S&P said.

Stating that permanent damage to private and public sector balance sheets would constrain growth over the next couple of years, it projected India’s growth at 7.8% in the fiscal year ending March 31, 2023.

“Further pandemic waves are a risk to the outlook given that only about 15% of the population has received at least one vaccine dose so far, although vaccine supplies are expected to ramp up,” S&P said.

Indian economy contracted by 7.3 % in fiscal 2020-21 as the country battled the first wave of COVID, as against a 4 % growth in 2019-20.

GDP growth in the 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.

Earlier this month, RBI too cut India’s growth forecast to 9.5 % for this fiscal, from 10.5 % estimated earlier.

It said manufacturing and exports were less severely affected compared with 2020, but services were acutely disrupted. Consumption indicators such as vehicle sales fell sharply in May 2021 and consumer confidence remains downbeat.

“The economy has turned a corner now. New COVID-19 cases have been falling consistently and mobility is recovering. We expect this recovery to be less steep compared with the bounce in late 2020 and early 2021,” it said.

S&P said households are running down saving buffers to support consumption and a desire to rebuild saving could hold back spending even as the economy reopens.

“Monetary and fiscal policies will remain accommodative but new stimulus will not be forthcoming,” it added.

S&P said RBI has no room to cut interest rates with inflation above 6 % the upper end of the central bank target range.

Also, fiscal policy is constrained by limited policy space, particularly because the budget for fiscal 2022 (ending March 31, 2022), which was decided before the second COVID-19 wave, had already targeted a large general government deficit of 9.5 % of GDP.

S&P joins a host of global and domestic agencies which have cut India’s growth estimates for current fiscal.

Another US-based rating agency Moody’s has projected India to clock a 9.3 % growth in the current fiscal ending March 2022. For 2021 calendar year, Moody’s has cut growth estimate sharply to 9.6 %.

Earlier this month, World Bank had slashed its GDP growth forecast for current fiscal ending March 2022 to 8.3 %, from 10.1 % estimated in April, saying economic recovery is being hampered by the devastating second wave of coronavirus infections.

Domestic rating agency ICRA too had projected economic growth at 8.5 % for this financial year, while British brokerage firm Barclays had last month cut India’s growth forecast to 9.2 %.

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