Economy to be in Deep Freeze: Moody’s

Moody’s Investors Service said India’s economy will not grow in the current financial year because of the “deep shock” triggered by the coronavirus outbreak and cautioned against downside risks to growth from a further extension of the lockdown.

Moody’s expects a bounce-back to 6.6% growth in FY22, assuming a gradual pick-up in economic activity and demand in the second half.

The rating company had predicted 2.5% growth for India in FY21in March.

It reaffirmed India’s Baa2 rating with a negative outlook, indicating a credit upgrade was unlikely in the near term, as it estimated a fiscal slippage of up to two percentage points to 5.5% of GDP against the budgeted 3.5%.

The economic jolt from the coronavirus outbreak will weigh significantly on growth until at least the second half of 2020, Moody’s said in a ratings update released on Friday. “The shock will exacerbate an already material slowdown in economic growth,” it said, adding that economic expansion will remain significantly lower than in the past.

Chief economic advisor Krishnamurthy Subramanian said that India could grow 2% in FY21. Moody’s said “prolonged financial stress among rural households, weak job creation and, more recently, a credit crunch among nonbank financial institutions have increased the probability of a more entrenched weakening” but added that government support should reduce the depth and duration of India’s growth slowdown.

It said the government’s ₹1.7 lakh crore stimulus package is “modest compared with support packages implemented in many other countries, particularly given the breadth of India’s nationwide lockdown measures.” “We expect the government will announce additional measures in the future,” it said, adding that steps to support the economy should help to reduce the depth and duration of the growth slowdown.

Moody’s expects the fiscal deficit for the Centre and the states combined to widen to 10% of GDP in this financial year.

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