S&P retains India's growth forecast at (-)9 per cent this fiscal

New Delhi: S&P Global Ratings on Monday retained its forecast of 9% contraction in India’s economy for the current fiscal even as it pegged the FY22 growth at 10%.
“We retain our growth forecast of negative 9% in fiscal 2020-2021 and 10% in fiscal 2021-2022. While there are now upside risks to growth due to a faster recovery in population mobility and household spending, the pandemic is not fully under control,” it said in its report on Asia Pacific.

The data major and ratings agency said it will wait for more signs that infections have stabilised or fallen, together with high-frequency activity data for the fiscal year third quarter, before changing its forecasts.


Official data released last week had shown India’s economy recovering faster than expected in the September quarter led by a pick-up in manufacturing. The gross domestic product (GDP) shrank of 7.5% compared to an unprecedented 23.9% contraction in the June quarter.

The Reserve Bank of India (RBI) expects India’s economy to contract 9.5% in FY21. As per S&P, the RBI will be constrained from cutting rates and it expects rates to start normalising upward from 2021 onwards.

The report also highlighted that India’s industrial sector is leading and the output is now above levels from a year ago, helped by rising demand for consumer goods.

“Investment recovered faster than consumption in the fiscal second quarter, partly due to resumption of stalled projects. The private sector drove the recovery as spending resumed and households and firms moved more toward normalized activity,” it said.

Official data had shown gross fixed capital formation, an indicator of investment, shrinking 7.3% in the second quarter compared with 47.1% in the previous quarter.

S&P also said inflation should ease from recent highs, albeit gradually even as it highlighted that the pass-through to core inflation, currently near 6%, suggests that inflation persistence remains a challenge.

“We project that headline consumer price inflation just above the mid-point of the RBI’s forecast a range of 2-6% through 2021. One-off factors should ease, including food-supply disruptions and supply constraints related to earlier lockdowns,” it said.

However, it said it does not expect much fiscal easing in its projections as past action has targeted low-income households, with substantial welfare effects, but a broader fiscal effort has been lacking.