Fitch Ratings Sees A 5% Contraction In India's GDP For 2020-21

Sunil Fernandes

Fitch Ratings has forecast a 5 per cent contraction for the Indian economy in the current fiscal, on account of slump in economic activities and very stringent lockdown policy. This is substantially lower than 0.8 per cent growth for 2020-21 fiscal projected in April.

According to a PTI report Fitch said it has made further cuts to world GDP forecasts in its latest Global Economic Outlook (GEO) for May, but the slump in global economic activity is close to reaching its trough.

"India has had a very stringent lockdown policy that has lasted a lot longer than initially expected and incoming economic activity data have been spectacularly weak," Fitch said.

This compares to an estimated 3.9 per cent growth in the previous fiscal. Growth is, however, expected to rebound to 9.5 per cent in 2021-22.

Fitch joins others like SBI and CRISIL, which see India's GDP shrinking in 2020-21.

In fact, Crisil too has painted a very bleak picture of the economy for 2020-21. India's fourth recession since Independence, first since liberalisation, and perhaps the worst to date is here, Crisil had stated in a report.

The rating agency sees the Indian economy shrinking 5 per cent in fiscal 2021 (on-year), because of the Covid-19 pandemic. This probably is one of the worst predictions, from a leading agency.

"The first quarter will suffer a staggering 25 per cent contraction and about 10 per cent of gross domestic product (GDP) in real terms could be permanently lost. So going back to the growth rates seen before the pandemic is unlikely in the next three fiscals. A month is a long time in today's pandemic-stricken world," the rating agency has said.

Fitch lower global economic outlook

Fitch has further lowered its global GDP forecast for 2020 to -4.6% from -3.9% in its late-April Global Economic Outlook (GEO) update. This reflects further cuts of more than 1pp to our eurozone and UK forecasts to around -8% and, most significantly, a 2.6pp cut to our forecast for emerging markets (EM) excluding China.

"The latter reflects the growing health crises in Brazil, Russia and India. However, our 2020 forecasts for the US, China, Japan, Korea, Australia and South Africa are unchanged since late-April, in contrast to repeated forecast downgrades in recent GEO updates," the rating agency has said.

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