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India’s Medium-Term Growth to Slow to Around 6.5% After Initial Rebound Fitch

India's Medium-Term Growth to Slow to Around 6.5% After Initial Rebound Fitch

NEW DELHI: The Indian economy will endure lasting havoc from the coronavirus crisis. After an initially sharp rebound in FY22 (fiscal year ending March 2022) development will stall to around 6.5 per cent a year over FY23-FY26, Fitch Ratings let out on Thursday.

“A combination of supply-side scarring and demand-side constraints – such as the weak state of the financial sector – will keep the level of GDP well below its pre-pandemic path,” it said in commentary on the Indian economy.

Fitch said India’s coronavirus-induced slump has been among the most serious in the world, amid a stringent lockdown and constrained direct fiscal assistance.

The economy is presently in a comeback stage that will be further aided by the rollout of vaccines in the following months.

“We expect gross domestic product (GDP) to expand by 11 per cent in FY22 (April 2021 to March 2022) after falling by 9.4 per cent in FY21 (April 2020 to March 2021),” it said.

India’s economy had been forfeiting impetus even ahead of the alarm rendered by the COVID-19 emergency. The GDP growth rate plummeted to a more than ten-year low of 4.2 per cent in 2019, below from 6.1 per cent the previous year.

The pandemic paid for a human and a financial crisis for India, with nearly 1.5 lakh deaths. However, the deaths per million are considerably meagerer than in Europe and the US; the economic effect had been much more drastic.

GDP in April-June was 23.9 per cent below its 2019 level, suggesting that almost a quarter of the country’s economic movement was snuffed out by the drying up of the global market and the domestic market’s downfall chaperoned the sequel of stringent national lockdowns.

Moreover, a 7.5 per cent decrease in GDP in the next quarter propelled Asia’s third-largest economy into an unusual slump.

Fitch asserted the medium-term comeback would be slow. “Supply-side potential growth will be reduced by a slowdown in the rate of capital accumulation – investment has recently fallen sharply and is likely to see only a subdued recovery.”

This, it asserted, will evaluate labour productivity, decreasing its prediction of supply-side probable GDP development for the six years FY21 to FY26 to 5.1 per cent per annum compared to our pre-pandemic forecast of 7 per cent.

“Our historical analysis of India’s growth performance highlights the key role played by a high investment rate in driving growth in labour productivity and GDP per capita over the last 15 years. But investment has fallen sharply over the last year and the need to repair corporate balance sheets and firm closures will weigh on the pace of recovery,” it said.

Restricted credit allowance amid an unstable financial operation is another headwind for investment.

The banking sector came into the catastrophe with naturally low asset disposition and restricted capital securities. Enthusiasm for lending will be restrained, especially as credit-guarantee and forbearance regulations rolled out in the catastrophe commence to be loosened up.

“The economy should be able to grow somewhat faster than estimated supply-side potential over the medium term following the unprecedented downturn in FY21. But our projection for the medium-term recovery path – at around 6.5 per cent per annum over FY23 to FY26 – would leave GDP well below its pre-pandemic trend,” it said.

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Written by Ritik Gupta

His name is Ritik Gupta; currently pursuing law. He has always kept pride as his everything. He deems writing as not like any other hobby but a reflection of one’s intellectuality. He likes to research on the parasitic problems and then lay them down in such a means that can be of assistance to the society. He just not studies law but treats it a controversial weapon to defeat the wrong.

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