However, it raised the FY23 growth projection for the country to 7.9% from 6.2% anticipated earlier. Still, over the longer term, it expected growth to hover around 6%. The agency also pegged India's real GDP contraction in FY21 at 7.2%, against 7% expected earlier.
Global rating agency Moody’s on Tuesday sharply trimmed its India growth forecast for FY22 to 9.3% from 13.7% estimated in February, stating that the severe second wave of coronavirus infections will “slow the near-term economic recovery and could weigh on longer-term growth dynamics”.
However, it raised the FY23 growth projection for the country to 7.9% from 6.2% anticipated earlier. Still, over the longer term, it expected growth to hover around 6%. The agency also pegged India’s real GDP contraction in FY21 at 7.2%, against 7% expected earlier.
Moody’s revised estimates come days after S&P, which had in March expected India to grow by 11% in FY22, lately forecast the growth rate slipping to 9.8% under a “moderate” scenario where Covid infections peak in May itself.
However, both the agencies have retained India’s sovereign rating at the lowest investment grade.
In its latest update on Tuesday, Moody’s projected India’s general government fiscal deficit (both the Centre and states) to rise to about 11.8% of GDP in FY22, compared with the previous forecast of 10.8% and an estimated 14% in FY21.
Similarly, the combined impact of slower growth and a wider deficit will drive the general government debt burden to 90% of GDP in FY22, gradually rising to 92% in FY24, the rating agency said.
The renewed surge in the virus will contribute to a marginal shortfall in revenue and a redirection of spending toward healthcare and virus response relative to what the government budgeted in February.
However, Moody’s stated that the impact of the second wave of the pandemic is unlikely to be as severe as during the first wave, although the re-imposition of lockdown measures will curb economic activity and could dampen market and consumer sentiment. “Unlike the first wave where lock-downs were applied nationwide for several months, the second wave ‘micro-containment zone’ measures are more localised, targeted and will likely be of shorter duration. Businesses and consumers have also grown more accustomed to operating under pandemic conditions,” the agency said.
As of now, we expect the negative impact on economic output to be limited to the April to June quarter, followed by a strong rebound in the second half of the year.
Nevertheless, it highlighted that as of early May, India’s active caseload count surpassed 3.5 million, with daily new cases exceeding 400,000. “The surge of the virus, which has been driven by a highly contagious variant, has put significant strain on India’s healthcare system with hospitals overrun and medical supplies in short supply,” it added.