In a report titled “ India is Ready for a Slow Medium-Term Recovery, ” Fitch said after an initial strong rebound in the fiscal year in early April 2021, growth would slow to around 6.5 percent per year. year over fiscal years 23 to 26 (April 2022 to March 2026). ).
India’s coronavirus-induced recession has been one of the most severe in the world, amid a tight lockdown and limited direct budget support, he said.
The Indian economy had lost momentum even before the shock caused by the Covid-19 crisis. The GDP growth rate fell to more than the ten-year low of 4.2% in 2019, from 6.1% the year before.
The pandemic has brought human and economic catastrophe to India, with more than 1.5 lakh deaths. Although deaths per million are significantly lower than in Europe and the United States, the economic impact has been much more severe.
GDP in April-June was 23.9% lower than its 2019 level, indicating that nearly a quarter of the country’s economic activity was wiped out by the drying up of global demand and the collapse domestic demand that accompanied the series of strict national lockdowns.
In addition, a 7.5% drop in GDP in the following quarter pushed Asia’s third-largest economy into an unprecedented recession.
The economy is now in a recovery phase which will be further supported by the deployment of vaccines in the coming months.
“We expect gross domestic product (GDP) to grow by 11% in FY 22 (April 2021 to March 2022) after falling 9.4% in FY 21 (April 2020 to March 2021 ), “Fitch said.
It grew 6.3% in fiscal 23 and 6.6% in the next three finances.
“The planned deployment of various vaccines in 2021 has prompted us to raise our GDP growth projections for the years ending March 2022 and 2023 (FY22 and FY23) to 6.3% (vs. 6% previously)”, a- he declared.
Growth will be supported by “waiting for the deployment of an effective vaccine, but we expect the level of GDP to remain well below its pre-pandemic trajectory even after the passage of the health crisis,” said the rating agency.
The rollout of effective vaccines leads the time when the economy normalizes, Fitch said. “We see India’s GDP rebound sharply in 2022. However, the amount of unused capacity in the economy is expected to remain high even through 2025 as demand will be dampened by lackluster credit supply.”
India has pre-ordered 1.6 billion doses of vaccine, including 500 million doses of the Oxford / AstraZeneca vaccine.
“That’s a pretty high number, even considering the size of an emerging market’s population,” Fitch said. “India also produces large quantities of vaccine doses.”
The cast is expected to allow for a quicker-than-expected easing of social distancing restrictions and boost sentiment.
“However, it seems likely that the vaccine rollout over the next 12 months will not reach the majority of the population given the enormous logistical and distribution challenges,” he said, adding that regional closures are being possible in the coming months.
A much slower than expected vaccine rollout will pose a downside risk.
“A combination of scars on the supply side and constraints on the demand side – such as weakness in the financial sector – will keep the level of GDP well below its pre-pandemic trajectory,” he said. .
Fitch said the medium-term recovery will be slow. “Potential growth on the supply side will be reduced by a slowdown in the rate of capital accumulation – investment has recently fallen sharply and is expected to recover only moderately.”
This, he said, will weigh on labor productivity, lowering his projection of potential GDP growth on the supply side for the six-year period FY21 to FY26 to 5.1% per annum from our pre-pandemic projection of 7%.
“Our historical analysis of India’s growth performance highlights the key role that a high investment rate has played in boosting labor productivity growth and GDP per capita over the past 15 years. But investment has fallen sharply over the past year and the need to fix business balance sheets and business closures will weigh on the pace of the recovery, ”he said.
Another barrier to investment is the limited supply of credit in a fragile financial system.
The banking sector entered the crisis with generally low asset quality and limited capital buffers. The appetite for loans will be tarnished, especially as the credit guarantee and forbearance measures put in place during the crisis begin to unravel.
“The economy should be able to grow a little faster than the estimated potential on the supply side over the medium term after the unprecedented slowdown of fiscal year 21. But our projections for the path of the recovery over the medium term – at around 6.5% per year over fiscal years 23 to 26 – would leave GDP well below its pre-pandemic trend, ”he said.
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