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Moody’s Slashes India’s 2021 Growth Forecast to 9.6% from 13.9%, Calls for Faster Vaccination

Four states – Maharashtra, Tamil Nadu, Uttar Pradesh and Karnataka – contributed the largest shares among all states in the financial year 2019-20. 

Image used for representational purposes. (Source: Pexels)

New Delhi: Moody’s Investors Service on Wednesday slashed India’s growth projection to 9.6 per cent for 2021 calendar year, from its earlier estimate of 13.9 per cent, and said faster vaccination progress will be paramount in restricting economic losses to June quarter.

In its report titled ‘Macroeconomics – India: Economic shocks from second COVID wave will not be as severe as last year’s’, Moody’s said high-frequency economic indicators show that the second wave of COVID-19 infections hit India’s economy in April and May. 

“The virus resurgence adds uncertainty to India’s growth forecast for 2021; however, it is likely that the economic damage will remain restricted to the April-June quarter. We currently expect India’s real GDP to grow at 9.6 per cent in 2021 and 7 per cent in 2022,” Moody’s said.

READ MORE: World Bank Cuts India’s Economic Growth Forecast to 8.3% for FY22 From 10.1%

With states now easing restrictions, economic activity in May is likely to signify the trough. 

Earlier this month, Moody’s had projected India to clock a 9.3 per cent growth in the current fiscal ending March 2022, but a severe second COVID wave has increased risks to India’s credit profile and rated entities. 

Indian economy contracted by 7.3 per cent in fiscal 2020-21 as the country battled the first wave of COVID, as against a 4 per cent growth in 2019-20. 

On sectoral analysis, the second coronavirus wave will affect India’s infrastructure sectors to varying degrees. The rating agency added power companies and ports will be better able to weather the impact of pandemic-induced disruptions compared with airports and toll roads, according to a new report by Moody’s Investors Service.

Stating that stringent lockdowns in economically significant states will mar April-June quarter economic activity, Moody’s said the 10 states that have been hardest hit by the second wave collectively account for more than 60 per cent of the pre-pandemic level of India’s GDP. 

Four states – Maharashtra, Tamil Nadu, Uttar Pradesh and Karnataka – contributed the largest shares among all states in the financial year 2019-20. 

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Moody’s said faster vaccination progress will be paramount in restricting economic losses to the current quarter. 

As of the third week in June, only about 16 per cent of the population had received one vaccine dose; of those, only about 3.6 per cent had been fully vaccinated. Moody’s expects the overall hit to India’s economy to be softer than that during the first wave last year. 

READ ALSO: Coronavirus Vaccination Update: India Sees Big Dip Day After Record 80 Lakh Jabs

However, the pace of recovery will be determined by access to and delivery of vaccines, and the strength of the recovery in private consumption, which could be hampered by the deterioration of balance sheets of low- and middle-income households from job, income and wealth losses. 

In contrast, Moody’s-rated power companies can manage the current demand contraction and elongated cash conversion cycle, given their good access to liquidity and sponsors that can provide financial support. Likewise, rated ports are well-positioned to handle any medium-term slowdown in cargo volumes, given their dominant market share and material buffer in their financial profiles to absorb temporary disruptions.

India’s second wave peaked in the beginning of May; since then, new cases and daily deaths have continued to fall, and the number of people who have recovered from the virus has exceeded the number of new infections since mid-May. India’s total tally of COVID-19 cases crossed the three-crore mark with 50,848 new cases reported in 24 hours. 

The death toll climbed to 3,90,660 with 1,358 fresh fatalities. “We assess the overall economic effect of the second wave to be softer than that during the first wave of the pandemic last year, although delivery of and access to vaccines will determine the durability of the recovery,” Moody’s added.

(With Inputs from PTI and ANI)

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