Indian Economy To Contract 10.5% In 2020-21: Fitch Ratings

Fitch Ratings on September 8 projected a contraction of 10.5 per cent for India's economy in the current financial year. This comes a month after the government data showed that the country's gross domestic product (GDP) shrank 23.9 per cent in the April-June period.

"We have slashed our GDP forecast for this fiscal year to (-) 10.5 per cent, a huge revision of (-) 5pp compared to the June Global Economic Outlook (GEO)," it said.

The government said that the fall in the GDP was triggered by one of the most strict nationwide lockdowns imposed in the world to fight the novel coronavirus.

"GDP should rebound strongly in 3Q20 (October-December) amid a re-opening of the economy, but there are signs that the recovery has been sluggish and uneven," Fitch said in its report released on Tuesday.

"The severe fall in activity has damaged household and corporate incomes and balance sheets, amid limited fiscal support. A looming deterioration in asset quality in the financial sector will hold back credit provision amid weak bank capital buffers. Furthermore, high inflation has added strains to household income," Fitch said.

Fitch had earlier projected the country's GDP to contract 5 per cent during this fiscal year.

"Supply-chain disruptions and excise duties increases have caused prices to rise. However, we expect inflation to slow amid weak underlying demand, an easing in supply-chain disruptions and a good monsoon," the report read.

Fitch expects global GDP to plummet by 4.4 per cent in 2020. The recovery in economic activity after the unprecedented COVID induced recession in March and April has been swifter than anticipated, Fitch said, but the pace of expansion is expected to be moderate soon.

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