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Indian economy to contract by 11.5% this fiscal: Moody’s

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Moody’s Investors Service recently cut India’s growth projection for this fiscal to minus 11.5 per cent from its earlier estimate of minus 4 per cent, saying the economic contraction would be more pronounced due to the lockdown and continued rise in coronavirus cases. It expects growth to rebound to 10.6 per cent in 2020-21 as economic activity normalises.

The rating agency also projected India’s debt burden to peak at around 90 per cent of the gross domestic product (GDP) in the current fiscal and the central government’s fiscal deficit to be close to 7.5 per cent of the GDP.

In the previous fiscal, India’s debt burden was 72 per cent of the GDP, while the fiscal deficit stood at 4.6 per cent.

India’s GDP contracted by 23.9 per cent year-on-year in the April-June quarter.

The sharp decline in growth will result in materially weaker government revenue. Combined with increased fiscal expenditure in response to the coronavirus outbreak, this will contribute to a wider general government fiscal deficit, which we now expect to reach 12 per cent of GDP in fiscal 2020, it said.

Moody’s expects the central government and states to run fiscal deficits close to 7.5 per cent and 4.5 per cent of GDP, respectively. This will drive a substantially higher debt burden, it said.

It said the economic contraction in 2020 to be more pronounced because of the lockdown and continued rise in coronavirus cases, a news agency reported.

“As the number of daily reported coronavirus cases increases, also spreading further outside major urban centres, the possibility of renewed lockdown measures continues to present downside risk to our forecasts. Even in the absence of renewed official restrictions outside of designated containment zones, economic uncertainties could weigh on consumer demand and investment.

“Beyond the pandemic, we see a risk that growth rebounds more gradually than in other major emerging economies, and remains below our previous expectations, held back by an increasingly impaired financial system, and limited fiscal capacity to provide support,” Moody’s said.

Moody’s had in June downgraded India’s sovereign rating to ‘Baa3′—the lowest investment grade—just a notch above junk status, with a negative outlook.

Fibre2Fashion News Desk (DS)



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