Fitch Solutions on Monday slashed its estimate for India's GDP growth in the fiscal starting April 1 to 4.6 per cent due to weaker private consumption and contraction in investment amid coronavirus outbreak, costing economies around the globe.
The growth estimate for 2020-21 fiscal (April 2020 to March 2021) compares with a 4.9 per cent forecast in the current 2019-20 that ends on Tuesday.
"At Fitch Solutions, we are revising India's FY2020/21 (April–March) real GDP growth forecast to 4.6 per cent, from 5.4 per cent previously, which reflects our view for a slowdown from our FY2019/20's estimate of 4.9 per cent," the rating agency said.
It said despite the Rs 1.7 lakh crore economic package announced last year, private consumption growth would come under strong headwinds over the coming months.
The lower growth estimate, it said, is "due to weaker private consumption and a contraction in investments, although a higher net exports contribution and higher government consumption should help blunt the economic blow from Covid-19".
Risks to the forecast are still on the downside, given that the outbreak in India, as suggested by its relatively low number of reported Covid-19 infections appears to be just beginning.
The number of cases reported "still appear improbably low" especially considering that India is the world's second-most populous nation with a population of over 130 crore.
"A weak healthcare system, with already stretched medical facilities, will also inhibit India's ability to 'flatten the infection curve', which informs our view for a sharp negative impact to the economy over H1FY2020/21 at least," Fitch said. "As such, we expect the outbreak to worsen significantly over the coming months."
Fitch Solutions joins a chorus of international agencies that have made a similar cut in growth estimates in recent days. Standard and Poor's (S&P) last week cut its estimate for India's GDP growth in 2020-21 to 5.2 per cent from its earlier estimate of 6.5 per cent.
Fitch Ratings slashed its growth forecast from 5.6 per cent to 5.1 per cent for 2020-21.
India has called for a minimum 21-day lockdown of its economy from March 25, aimed to stem the spread of the virus.
All individuals, with the exception of those working in essential services identified by the government such as public administration, traders dealing in daily necessities, medical staff, and manufacturers of essential medical products, effectively face a ban on leaving their homes during the period.
India has also closed its land borders and suspended all visa issuances, with the exception of diplomatic, employment, and project visas till April 15.
"We now expect private consumption to come under pressure and also for investments to register a full-year contraction," Fitch Solutions said. "That said, a higher net exports contribution, due to a sharper imports contraction versus exports, and higher government consumption will aid to cushion the blow."
It revised private consumption growth forecast to 3 per cent, from 4.5 per cent previously, putting it far below the 7 per cent average over the past decade.
Movement as well as job restrictions due to the lockdown and thereby income losses will also inhibit an increase in private consumption for many over the coming months. This has already had a disproportionately impact on the poor working in the cities, forcing many to return home in rural areas. While the government's direct cash transfers should ideally help ease the financial burden for many of the poor, Fitch highlighted implementation challenges, which would hamper the stimulus' effectiveness. Direct cash transfers to the bank accounts also present some challenges.
It expected investments to contract by 2.5 per cent, versus a 3.7 per cent growth previously.
"An uncertain demand outlook, both externally and domestically, due to a global economy set to go into a recession and a fall in purchasing power domestically due to income loss, will see businesses defer their investment plans," Fitch said.
"Notwithstanding weaker profits owing to a sharp growth deceleration since Q1 FY2018/19, which has already reduced capital available for business reinvestment, a continued deceleration in year-on-year commercial credit growth also points towards a tepid investment outlook over the coming months."
It said the fiscal stimulus announced on March 26 is grossly insufficient to lift economic growth, and as such, expect additional spending to be announced over the coming months.
"To provide context, India's stimulus package so far only represents about 0.8 per cent of GDP, which pales in comparison when compared with other countries such as the US and Singapore, at 10 per cent and 11 per cent of their respective GDP so far," it added.
Separately, India Ratings and Research on Monday has revised its FY21 gross domestic product (GDP) growth down to 3.6 per cent from 5.5 per cent because of the spread of COVID-19 and the resultant nationwide lockdown imposed till April 14, crippling most economic and commercial activities.
"The revision is based on the assumption of lockdown continuing till end-April 2020 (full or partial) and gradual restoration of economic activities May 2020 onwards," it said, adding it has also revised FY20 GDP forecast downward to 4.7 per cent.