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

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S&P Global Ratings on Thursday cut India’s growth forecast for the current fiscal to 9.5 percent, from 11 percent earlier, and warned of risk to the outlook from further waves of COVID 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 growth of 9.5 percent this fiscal year from our March forecast of 11 percent,” S&P said.

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

“Further pandemic waves are a risk to the outlook given that only about 15 per cent 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 percent in fiscal 2020-21 as the country battled the first wave of COVID, as against a 4 per cent 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 percent for this fiscal, from 10.5 per cent 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 percent 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 percent 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 percent growth in the current fiscal ending March 2022. For 2021 calendar year, Moody’s has cut growth estimate sharply to 9.6 percent.

Earlier this month, World Bank had slashed its GDP growth forecast for current fiscal ending March 2022 to 8.3 percent, from 10.1 percent 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 percent for this financial year, while British brokerage firm Barclays had last month cut India’s growth forecast to 9.2 percent.