Fitch Ratings said that the economic outlook is brighter owing to an expected rollout of various vaccines in 2021.
"After several years of downgrades to India's medium-term growth outlook, we believe upgrades are now likely.
Fitch Ratings revised up India’s GDP projection to a contraction of 9.4 per cent due to a strong economic recovery in the second quarter of the current fiscal year. It earlier suggested that India’s GDP may shrink by 10.5 per cent in the FY21. Fitch Ratings further projected an 11 per cent growth and 6.3 per cent growth in the following years. In its Global Economic Outlook, the rating agency said that the coronavirus recession has inflicted severe economic scarring and the country needs to repair balance sheets and increase caution about long-term planning. It is to be noted that following the first-quarter results, Fitch Ratings had revised the full-year GDP projections to a contraction of 5 per cent, from a contraction of 10.5 per cent.
“The rebound in activity was especially sharp in the manufacturing sector as output reached its pre-pandemic level in Q2, and the manufacturing PMI hints at further gains,” the report said. It added that manufacturing is buoyed by strong demand for autos and pharmaceutical products, in particular. On the other hand, the rebound in the services sector was more muted amid continued social distancing, with containment measures scaled back only gradually.
Fitch Ratings underlined that the outlook is brighter owing to an expected rollout of various vaccines in 2021. India has pre-ordered 160 crore doses including 50 crore doses of the Oxford/AstraZeneca vaccine. The rating agency believes that the distribution should allow a faster-than-expected easing of social-distancing restrictions and boost sentiment. However, the huge logistical and distribution challenges in India is still a caveat.
While the regional shutdowns are likely in the next few months, the supply disruptions are also inevitable. However, Fitch Ratings said that the inflation has now peaked and should start to decelerate rapidly on favourable base effects and an easing of supply disruptions. This is also expected to provide room for the RBI to cut interest rates in 2021. Fitch saw consumer price inflation at 4.9 per cent in the current fiscal, which would ease to 3.5 per cent in the next fiscal year.