Moody’s forecasts lower GDP fall for India in FY21; Morgan Stanley too projects lower contraction


India’s latest round of stimulus measures shifted focus back to longer-term growth by focusing on manufacturing and job creation, global rating agency Moody’s said, as it predicted a 10.6% contraction in the country’s real GDP in FY21, against a 11.5% drop forecast earlier.

India’s economy has started to heal as is evident by a significant sequential improvement in high-frequency data such as PMI, rail freight, power demand, GST collections, and e-way bills. The sectoral improvements have raised optimism for the economic growth in the fiscal’s second quarter. GDP may contract at a slower pace of 6 per cent on-year in Q2 FY21, compared to a 23.9 per cent fall in the previous quarter, said a report by Morgan Stanley. Further, consumption and investments are also expected to have improved, with exports positively contributing to growth, the report added.

Moody’s Investor Service also revised its projection for real growth for the next fiscal to 10.8% from 10.6%, indicating a stronger rebound, aided by a favourable base effect. In the medium term, though, the growth rate will be around 6%, the agency said.

“The latest measures aim to increase the competitiveness of India’s manufacturing sector and create jobs, while supporting infrastructure investment, credit availability and stressed sectors. As such, they present potential upside to our current growth forecasts, a credit positive,” Moody’s said.

Morgan Stanley said, “While the industry and services growth remained robust in Q2, and the agriculture growth remained resilient due to favourable monsoon, the GVA is likely to pick up due to pent up demand. The government’s stimulus measures that aim at boosting manufacturing and creating jobs have led to optimism over the economic growth estimates for the full fiscal year.

Last week, the Indian government announced a raft of measures amounting to a total of Rs 2.68 lakh crore (close to 1.4% of GDP); a sizeable chunk of the fiscal stimulus, however, included commitments for five years and a few involved extra-budgetary resources.

Besides, other organisations such as Goldman Sachs, Barclays, and ICRA have also raised India’s GDP forecast recently. ICRA projected the on-year contraction in Indian GDP to have narrowed to 9.5 per cent in Q2 FY21 from 23.9 per cent in Q1.

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