India may regain ‘fastest-growing economy’ tag in 2021; base effect, Modi govt policies to help

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Updated: Dec 09, 2020 5:53 PM

In the year 2021, India is projected to grow faster than most major economies, including European nations, developed markets, and emerging markets.

"After several years of downgrades to India's medium-term growth outlook, we believe upgrades are now likely."After several years of downgrades to India's medium-term growth outlook, we believe upgrades are now likely.

India may dramatically reverse the economic loss it suffered in 2020, and may regain the fastest growing economy tag in the next year. In the year 2021, India is projected to grow faster than most major economies, including European nations, developed markets, and emerging markets. While the low base effect is believed to be the biggest reason for the sharp economic recovery, Prime Minister Narendra Modi government’s measures are also among the significant reasons behind the expected rebound.

From a 23.9 per cent contraction in the fiscal’s first quarter, the Indian economy improved to a contraction of 7.5 per cent in Q2. This has also led to increased optimism for India’s growth in the subsequent quarters. In a series of forecast revisions, many credit rating agencies have raised India’s growth projections.

In the latest report, Fitch Ratings said that the outlook for India 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. It added that the distribution should allow a faster-than-expected easing of social-distancing restrictions and boost sentiment. Once the fastest-growing economy, India lost this tag to China amid the slowdown that hit India much before the coronavirus pandemic.

India’s GDP growth continuously fell from 8.2 per cent in Q4 FY18 to -23.9 in Q1 FY21, with an exception of a marginal 0.1 per cent increase in Q4 FY19. Now, with various government measures put in place to support the economy, coupled with a favourable base effect, the rise in India’s GDP growth, to nearly 10 per cent, is expected to beat all the major economies of the world.

Meanwhile, Moody’s has also raised the growth forecast for the next fiscal year FY 2021-22 from 10.6 per cent to 10.8 per cent. Moody’s said that the forecast has been revised by keeping in mind the latest stimulus measures that prioritises manufacturing and job creation, and focuses on longer-term growth. It added that the latest measures aim to increase the competitiveness of India’s manufacturing sector and create jobs while supporting infrastructure investment, credit availability, and stressed sectors.

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