Indian Economy To Bounce Back With 9.5% In Next Fiscal Year: Fitch Ratings

The Indian economy is likely to bounce back with a sharp growth rate of 9.5 per cent next year, after the contraction in the current financial year, if it manages to avoid further deterioration in the financial sector, Fitch Ratings said on Wednesday.  

This forecast comes hours after credit ratings agency Standard & Poor's (S&P) retained India's sovereign rating at "BBB-" - the lowest investment-grade level - with a stable outlook and promised to upgrade the country's ratings if the government significantly curtailed its fiscal deficit.

Fitch Ratings forecast a 5 per cent contraction in the GDP in the ongoing financial year as the coronavirus pandemic will lead to shrinking of the already slowing economy.

"The pandemic has drastically weakened India's growth outlook and laid bare the challenges caused by a high public-debt burden," Fitch Ratings said in its APAC Sovereign Credit Overview released on Wednesday.

"After the global crisis, India's GDP growth is likely to return to higher levels than 'BBB' category peers, provided it avoids further deterioration in financial sector health as a result of the pandemic," the rating agency added.

Last week, Moody's Investors Service had downgraded India's sovereign rating to "Baa3" from "Baa2" and short-term local-currency rating to "P-3" from "P-2", citing challenges in implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position.

India had announced the world's largest lockdown on March 25 to combat the spread of coronavirus, bringing the economy to a screeching halt. While the country is currently in unlock 1, the road to a full recovery is likely to be long and tortuous.

The government has announced stimulus measures amounting to 10 per cent of GDP and the Reserve Bank of India has eased monetary policy by cutting policy rates and providing liquidity in order to support the economy.