Owing to slowing recovery post second wave of COVID-19, Fitch Ratings has cut India’s growth forecast to 10% for the current fiscal from an earlier estimate of 12.8%. It said rapid vaccination could support a sustainable revival in business and consumer confidence.
The global rating agency said the challenges for banking sector posed by the COVID-19 pandemic have increased due to a virulent second wave in the first quarter of the financial year ending March 2022.
“Fitch Ratings revised down India’s real GDP for FY22 by 280 bp to 10%, underlining our belief that renewed restrictions have slowed recovery efforts and left banks with a moderately worse outlook for business and revenue generation in FY22,” the report said. Fitch believes that rapid vaccination could support a sustainable revival in business and consumer confidence; however, without it, economic recovery would remain vulnerable to further waves and lockdowns.
Localized lockdowns during the second wave kept economic activity from stalling to levels similar to those during 2020, but disruption in several key business centres has slowed the recovery and dented Fitch’s expectations of a rebound to pre-pandemic levels by FY22. India’s economy contracted 24.4% in June quarter of 2020. Fitch views India’s rebound potential to be better than most comparable “BBB” – peers because it does not expect a structurally weaker real GDP growth outlook. However, there is a risk that India’s medium-term growth could suffer if the business and consumer activity were to experience scarring from the pandemic.
It estimates India’s medium term growth potential at about 6.5%. Stating that vaccination is key for business revival and relief measures would only provide interim support, Fitch said the low vaccination rate makes India vulnerable to further waves of the COVID-19 pandemic. “Only 4.7% of its 1.37 billion population was fully vaccinated as July 5, 2021. This poses risk to the prospects of a meaningful and sustainable economic recovery,” it added. The Indian economy contracted 7.3% in fiscal 2020-21 as the country battled the first wave of COVID, as against a 4% growth in 2019-20.
GDP growth in current fiscal was estimated to be in double digits initially, but a severe second wave of pandemic led various agencies to cut growth projections.