Business / Fitch slashes India's growth forecast for 2020-21 from 2% to 0.8%

New Delhi: Fitch Ratings on Thursday slashed the FY21 growth forecast for India from 2% projected barely three weeks ago to 0.8%, saying that the depth of the global recession appears to be far more severe. It said the economic collapse will lead to further downward revisions to gross domestic product (GDP) forecasts for emerging markets.

“Falling commodity prices, capital outflows and more-limited policy flexibility are exacerbating the impact of domestic virus-containment measures. With both China and India now expected to experience sub-1% growth, we expect an outright contraction in EM (emerging market) GDP in 2020, a development unprecedented since at least the 1980s," Fitch said.

China’s economy is projected to grow at 0.7% in 2020.

The International Monetary Fund expects India to grow at 1.9% in 2020-21, while the World Bank has projected India’s growth at 1.5-4%.

Fitch expects the world GDP to contract by 3.9% in 2020 against the earlier estimate of 1.9%, and hit a recession of “unprecedented depth in the post-war period".

For India, consumer spending will decline from 5.5% in FY20 to 0.3% in FY21, while fixed investment will contract by 3.5% in FY21 compared to the 1.5% fall in FY20. While retail inflation is expected to decelerate to 3.8% for FY21, the rupee’s exchange rate against the dollar will be at 78 by the end of 2020, it added.

Earlier this month, Fitch said that the rapid deterioration in the global sovereign rating outlook due to the coronavirus outbreak and sharp fall in oil prices may force it to make multi-notch downgrades for many countries through 2020.

Last December, Fitch Ratings had reaffirmed India’s sovereign credit rating at the lowest investment grade (BBB-) with a stable outlook, holding that the country’s rating balances a still strong medium-term growth outlook compared with BBB category peers and relative external resilience.

India’s ongoing 40-day lockdown has brought economic activities into a standstill. Industry lobby Confederation of Indian Industry in a note on Thursday said it expects the economy to grow at 0.6% in FY21 in the baseline scenario, 1.5% in the optimistic scenario and a contraction by 0.9% in downside risk scenario of an extended lockdown.

“Given the extent of the damage to the economy from the disruption to business, the GDP growth in FY21 will likely be the lowest in many decades," said Chandrajit Banerjee, director general, Confederation of Indian Industry.

CII said the economic costs of the lockdown are rising each passing day with the impact being felt across sectors and the situation requires immediate, across the board intervention from the government.

“The urgent fiscal interventions, as suggested by CII, should include cash transfers amounting to ₹2 trillion to JAM account holders, in addition to the ₹1.7 trillion stimulus already announced. CII has suggested additional working capital limits to be provided by banks, equivalent to the April-June wage bill of the borrowers, backed by a government guarantee, at 4-5% interest," it added.

The finance ministry is conducting frequent meetings with the prime minister’s office to finalize the broad contours of the stimulus package. The 15th Finance Commission, during its two-day deliberation which started on Thursday, will also discuss ways to pump prime the economy this fiscal year and the next.

The finance ministry’s principal economic adviser, Sanjeev Sanyal, said on Wednesday that the government will roll out relief measures in a calibrated manner, rather than in one big bang stimulus, which has been the norm followed by other countries.