S&P improves India’s growth forecast for FY21; says, country recovering faster than expected

The trend of rating agencies improving India’s GDP forecasts continues, with the latest revision done by S&P Global Ratings. S&P has revised India’s real GDP growth estimates of the current fiscal year to a contraction of 7.7 per cent, from 9 per cent. Further, in the year 2021-22, the rating agency has estimated the growth to rebound to 10 per cent. The improved perception of India’s growth is due to a faster-than-expected recovery in the current fiscal’s second quarter, rising demand, and a falling rate of Covid-19 infections.

S&P said India is learning to live with the virus, even though the pandemic is far from defeated and reported cases have fallen by more than half from peak levels, to about 40,000 per day. However, the feared resurgence following the recent holiday season is yet to materialise. India is following the path of most economies across Asia-Pacific in experiencing a faster-than-expected recovery in manufacturing production, which is no surprise, said S&P Global Ratings Asia-Pacific chief economist Shaun Roache.

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It is to be noted that India’s economy shrank 7.5 per cent in Q2, after a record slump of 23.9 per cent in Q1. While the manufacturing output was nearly 3.5 per cent on-year higher in October 2020, the output of consumer durables rose by almost 18 per cent. On the back of a significant improvement in the macroeconomic numbers, Fitch Ratings had also revised its growth forecast for India to (-) 9.4 per cent, from (-) 10.5 per cent earlier this week.

Meanwhile, under the flagship Atmanirbhar Bharat package, the government rolled out various industry-specific measures to support the businesses after the lockdown brought them to a near standstill. Government-backed guarantee loans, early release of pending income tax returns, ease in compliance, etc helped the economy to kickstart the recovery process. In recent months, auto sales, and the sales of consumer durables shot up, giving optimism on sustained growth.