India's GDP to expand by 11% in 2021-22 after falling by 9.4%: Fitch Ratings
The economy should be able to grow somewhat faster than estimated supply-side potential over the medium term
As the Indian economy is in the recovery phase further supported by the rollout of the Covid-19 vaccine, the Gross Domestic Product (GDP) is expected to expand by 11 percent in the financial year 2022, said a report by an American credit rating agency.
"We expect the gross domestic product (GDP) to expand by 11 percent in FY22 (April 2021 to March 2022) after falling by 9.4 percent in FY21 (April 2020 to March 2021)," Fitch Ratings said in its report on Wednesday.
Fitch said India's coronavirus-induced recession has been among the most severe in the world, amid a stringent lockdown and limited direct fiscal support.
However, it noted the economy is now in a recovery phase that will be further supported by the rollout of vaccines in the next months.
Fitch said India is unusual among emerging markets in having secured pre-orders of various vaccines sufficient to cover a population-wide program. It has pre-ordered 1.6 billion vaccine doses, including 500 million of the Oxford/AstraZeneca vaccine through a local producer.
Distribution should allow social distancing restrictions to be eased over time and will underpin sentiment.
Further, it pointed out that India’s growth performance highlights the key role played by a high investment rate in driving growth in labor productivity and GDP per capita over the last 15 years.
However, investment has fallen sharply over the last year and the need to repair corporate balance sheets and firm closures will weigh on the pace of recovery, it said.
Constrained credit supply amid a fragile financial system is another headwind for investment.
The banking sector entered the crisis with generally weak asset quality and limited capital buffers. Appetite for lending will be subdued, particularly as credit-guarantee and forbearance measures rolled out in the crisis start to be unwound.
"The economy should be able to grow somewhat faster than estimated supply-side potential over the medium term following the unprecedented downturn in FY21. But our projection for the medium-term recovery path - at around 6.5 percent per annum over FY23 to FY26 - would leave GDP well below its pre-pandemic trend," it said.