Indian economy to contract sharply as pandemic cripples activity – S&P

The impact of the coronavirus crisis on the Indian economy will be severe, according to S&P Global Ratings. It said on Thursday the country’s economy will shrink five percent in the current fiscal year (April 2020 to March 2021).

The contraction forecast reverses the agency’s previous growth projection of 1.8 percent made in April. Moody’s rating agency forecasted a ‘zero’ growth rate for India in FY21.

“We have lowered our growth forecast for fiscal year ending March 2021 to a five percent contraction… We currently assume that the outbreak peaks by the third quarter,” S&P said. Earlier this week, ratings agencies Fitch and Crisil also projected a five-percent contraction for the nation’s economy.

According to S&P, growth is expected to pick up to 8.5 percent in the following fiscal year (up from the previous forecast of 7.5 percent). The country’s GDP is projected to expand by 6.5 percent.

“COVID-19 has not yet been contained in India. New cases have been averaging more than 6,000 a day over the past week as authorities begin easing stringent lockdown restrictions gradually to prevent economic costs from blowing out further. We currently assume that the outbreak peaks by the third quarter,” S&P said. The lockdown in India has been extended three times, currently until May 31, with some easing of restrictions.

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“We expect that employment will remain depressed over the transition period,” the agency said, explaining that the services sector, which accounts for a high share of employment in India, has been severely affected.

S&P added that the big hit to growth will mean large, permanent economic loss and a deterioration in balance sheets throughout the economy.

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