Moody's cuts India growth forecast, warns of severe and prolonged stress

Moodys Investors Service on Tuesday revised its India GDP forecast down to 93 per cent from 137 per cent for fiscal 2021As of now we expect the negative impact on economic output to be limited to the April to June quarter followed by a strong rebound in the second half of the year As a result of the negative impact of the second wave we have revised our real inflationadjusted GDP growth forecast down to 93 per cent from 137 per cent for fiscal 2021 and to 79 per cent from 62 per cent in fiscal 2022 Over the longer term we expect growth of around 60 per cent thereafter Moodys saidIt said that the credit profile of India is increasingly constrained by obstacles to economic growth a high debt burden and weak financial systemPolicymaking institutions have struggled to tackle and contain these risks exacerbated by the coronavirus pandemic Mutually reinforcing risks from deeper stresses in the economy and financial system could lead to a more severe and prolonged erosion in fiscal strength exerting further pressure on the credit profile Moodys saidIndia is experiencing a severe second wave of coronavirus infections which will slow the nearterm economic recovery and could weigh on longerterm growth dynamicsThe second wave started in March in the state of Maharashtra home to the major urban centre of Mumbai and has since spread throughout the country As of early May Indias active caseload count surpassed 35 million with daily new cases exceeding 400000 The surge of the virus which has been driven by a highly contagious variant has put significant strain on Indias healthcare system with hospitals overrun and medical supplies in short supplyMoodys said lockdowns and tightened restrictions have focused on the most severely impacted states and districts as 10 states or Union Territories continue to account for around 75 per cent of active cases The governments latest order on containment measures which remain effective until the end of May advises states and Union Territories to demarcate containment zones based on a test positivity or bed occupancy threshold it recommends measures such as night curfews prohibition of gatherings closure of recreational facilities and reductions in public transport operational capacityThe reimposition of lockdown measures will curb economic activity and could dampen market and consumer sentimentHowever we do not expect the impact to be as severe as during the first wave Unlike the first wave where lockdowns were applied nationwide for several months the second wave microcontainment zone measures are more localized targeted and will likely be of shorter duration it addedBusinesses and consumers have also grown more accustomed to operating under pandemic conditionsOn the fiscal front Moodys expects the renewed surge in the virus to contribute to a marginal shortfall in revenue and a redirection of spending toward healthcare and virus response relative to what the government budgeted in FebruaryAs a result we now expect a wider general government fiscal deficit of about 118 per cent of GDP in fiscal 2021 compared with our previous forecast of 108 per cent and an estimated 14 per cent in fiscal 2020 We expect the combined impact of slower growth and a wider deficit to drive the general government debt burden to 90 per cent of GDP in fiscal 2021 gradually rising to 92 per cent in fiscal 2023 it saidIndia began the third phase of its vaccination campaign for those aged 1844 on May 1 making the vaccination available to the entire adult population However as of early May only around 10 per cent of the countrys population had received at least one dose of the vaccine Meanwhile a shortage of vaccines and logistical difficulties in reaching a large rural population about twothirds of the population complicates the vaccine rolloutThe international community has recently contributed to Indias vaccine efforts with increased medical and vaccine supplies to help address shortfalls The spread of the virus and the rate of vaccinations will have a direct impact on economic outcomes Moodys saidOn May 5 the Reserve Bank of India announced new liquidity measures to support the economy and financial system during the second wave Measures focused on loan forbearance and liquidity access to households and businesses including through a restructuring scheme with the extension of a loan moratorium for up to two yearsThis story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability trustworthiness reliability and data of the text Midday managementmiddaycom reserves the sole right to alter delete or remove without notice the content in its absolute discretion for any reason whatsoever