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S&P slashes India's GDP growth forecast to 9.5% in FY21
Jun-24-2021

S&P Global Ratings has slashed India's Gross domestic product (GDP) growth forecast to 9.5 percent for the current fiscal (FY21), from 11 percent earlier, and warned of risk to the outlook from further waves of COVID pandemic. It lowered the growth outlook saying that a severe second COVID-19 outbreak in April and May led to lockdowns imposed by states and sharp contraction in economic activity. Stating that permanent damage to private and public sector balance sheets will constrain growth over the next couple of years, it projected India's growth at 7.8 percent in the next fiscal ending March 31, 2023.

The agency has stated that further pandemic waves are a risk to the outlook given that only about 15 percent of the population has received at least one vaccine dose so far, although vaccine supplies are expected to ramp up. It also said Indian economy contracted by 7.3 percent in fiscal 2020-21 as the country battled the first wave of COVID, as against a 4 percent growth in 2019-20. GDP growth in the current fiscal was estimated to be in double digits initially, but a severe second wave of pandemic has led to various agencies cut growth projections. 

It further said manufacturing and exports were less severely affected compared with 2020, but services were acutely disrupted. It noted that households are running down saving buffers to support consumption and a desire to rebuild saving could hold back spending even as the economy reopens. It stated that monetary and fiscal policies will remain accommodative but new stimulus will not be forthcoming. It added that RBI has no room to cut interest rates with inflation above 6 percent the upper end of the central bank target range.

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