Moody's Lowers India's GDP Contraction Forecast On Additional Govt Stimulus

On Thursday, Moody's Investors Service revised its forecast for India's real gross domestic product (GDP) for the current fiscal 2020-21 from 11.5% contraction earlier to 10.5% contraction. It also revised upwards its expectation for GDP growth rate to 10.8 percent for 2021-22 from the earlier 10.6 percent.

The rating agency said that the additional stimulus measures announced by the government last week were aimed at increasing manufacturing competitiveness and creating jobs while supporting infrastructure investment, credit availability to stressed sectors.

"As such, they present potential upside to our current forecasts, a credit positive," Moody's said in a statement.

"As countries have increasingly looked to greater diversification in their supply chains since the coronavirus pandemic, the timely introduction of these measures could boost India's manufacturing industry, which contributed around 15% of GDP in 2019," the ratings agency said, adding that widening the scope of the credit guarantee scheme will boost credit flow and aid recovery.

The rating agency, however, said consumer confidence in India continues to remain relatively weak amid a relentless rise in fresh coronavirus cases, even as it said that the numbers peaked in September.

"Stronger nominal GDP growth over the medium term would make it easier for India's government to address its weak fiscal position, which the coronavirus has exacerbated; we forecast government debt to increase to 89.3% of GDP in fiscal 2020 and decline to 87.5% in fiscal 2021, from an already elevated 72.2% in fiscal 2019," it said in a report.

"The country's mixed track record on revenue-raising measures lowers prospects for fiscal policy-driven budget consolidation. A sustained increase in GDP growth would therefore likely be a major driver of any durable future fiscal consolidation," it said.

India's economy contracted by a record 23.9% in the June quarter, due to a significant impact from the nationwide lockdown to curb the spread of the coronavirus pandemic.