Moody's Joins Other Rating Agencies; Cuts FY22 GDP Forecast For India To 9.3 Per cent

Following other rating agencies, Moody's Investors Service on Tuesday slashed the country's economic growth forecast from the earlier estimated 13.7% to 9.3% for FY22. This was done given the negative effect of the second coronavirus wave. The agency warned that risks resulting from deeper stresses in the financial system and economy may cause a drastic and prolonged deterioration in fiscal strength, putting a pressure on the credit standing of the country.

"The reimposition of lockdown measures will curb economic activity and could dampen market and consumer sentiment. However, 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 "micro-containment zone" measures are more localized, targeted and will likely be of shorter duration. Businesses and consumers have also grown more accustomed to operating under pandemic conditions. As 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," it said.

The second Covid 19 wave has hit the country's healthcare system and forced many states to announce localized lockdowns together with night curfews, which is expected to slow the country's economic rebound. Last week S&P Global Ratings said it expects the country to grow at 9.8% under its moderate scenario, while in case of serious situation it expects GDP growth to be at 8.2%.

Earlier in May Brickwork Ratings also revised the country's FY22 economic growth forecast to 9% from 11% earlier and maintained that its earlier projection of a V-Shaped economic recovery is unlikely due to the deadly second Covid wave which has abruptly halted the country's recovery from the pandemic.

The rating agency has assigned India 'lowest investment grade with negative outlook' said continuing hurdles to growth such as weak infrastructure, rigidities in labour, land and product markets, and rising financial sector risks imply a rating upgrade is unlikely in the near term. "However, we would change the outlook on India's rating to stable if economic developments and policy actions were to raise confidence that real and nominal growth will rise to sustainably higher rates than we project. Measures which enhance financial stability by strengthening the supervision, regulation and capitalization of the financial sector would support such a move. Commensurate action to halt and reverse the rise in the debt trajectory, even slowly, would also promote a stable outlook. Further evidence that self-reinforcing economic and financial risks are rising would put (downward) pressure on the rating," it said.

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