FY22 outlook: Moody’s raises India growth forecast to 13.7%

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February 26, 2021 4:15 AM

For the current fiscal, Moody’s revised up its prediction of a contraction in real GDP to 7% from 10.6%.

The agency also said the central government's fiscal deficit for FY21 and FY22 should be lower than projected (9.5% of GDP and 6.8%, respectively), supported by stronger revenue generation in the fourth quarter of this fiscal and higher nominal GDP growth in the next.The agency also said the central government's fiscal deficit for FY21 and FY22 should be lower than projected (9.5% of GDP and 6.8%, respectively), supported by stronger revenue generation in the fourth quarter of this fiscal and higher nominal GDP growth in the next.

Global rating agency Moody’s on Thursday sharply raised its India growth forecast for the next fiscal to 13.7% from 10.8% estimated earlier, citing growing confidence of the normalisation of economic activity with the rollout of Covid-19 vaccines.

For the current fiscal, Moody’s revised up its prediction of a contraction in real GDP to 7% from 10.6%.

The agency also said the central government’s fiscal deficit for FY21 and FY22 should be lower than projected (9.5% of GDP and 6.8%, respectively), supported by stronger revenue generation in the fourth quarter of this fiscal and higher nominal GDP growth in the next.

“Still, wide fiscal deficits combined with lower real and nominal GDP growth over the medium term will constrain the government’s ability to reduce its debt burden,” said Moody’s Investors Service associate managing director (sovereign risk) Gene Fang. Its debt level is expected to touch as high as 90% of nominal GDP in FY21, against 72% a year before.

Meanwhile, Icra principal economist Aditi Nayar forecast a 0.3% growth in the third quarter of the current fiscal. She projected a 7% contraction in real GDP in the current fiscal. However, real growth will rebound to 10.5% in the next fiscal, she said. There could be upside to her growth projection for FY22 if the government’s capital expenditure increases (the Centre has budgeted an impressive 26.2% rise in capex for the next fiscal from the revised estimate for FY21), Budget announcements are adopted well and vaccination drives are carried out swiftly.

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