India's economic growth will no longer be zero-negative: MOODY'S

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(Commercial Representative) Mumbai, May 22, 2020, Friday

The international credit rating agency Moody's Investors Service has downgraded its economic growth forecast for India for FY 2021 to zero for the current financial year.

Moody's said in a report released today that prolonging the lockdown by the government's recently announced fiscal measures is unlikely to solve the problem of slowing business activity and low production. Moody's Assistant Vice President Deborah Tan says Moody's estimates that the Corona epidemic has already begun to affect household consumption and that the current fiscal year 2020-21 will see a sharp decline in India's economic growth and GDP growth as business activity declines.

However, the report does not take into account the additional lending policy measures announced by Moody's today by the Reserve Bank of India. Based on the underlying impact in favor of the global rating agency, the next financial year is now expected to see a stronger economic recovery than the previous estimate of 7.5 per cent.

This time around, Moody's has given negative estimates for the current financial year like other global agencies, following the announcement of India's self-sufficient India package by avoiding giving exact figures. For the current financial year 2020-21, India's economic growth-GDP growth is projected at minus 5 per cent by Bernstein and minus 5 per cent by Goldman Sachs and Nomura.

Regarding the stimulus-economic package, the report said that the impact of the policy reforms is likely to be felt in the medium term, so growth is not likely to accelerate in the short term. With this, the direct fiscal impact will be 1 to 5 per cent of GDP and there will be limited scope for economic growth.

Moody's also said that the weakening of revenues and lower disinvestment revenues will increase the pressure on the fiscal deficit. The loan guarantee scheme for working capital loans to macro, small and medium enterprises will be insufficient to provide a complete umbrella to the sector from the impact of economic shock.

According to the report, other measures to ease liquidity conditions, such as the Partial Credit Guarantee Scheme, will also not reduce the risk in the financial sector. So that the recent measures of the government as a whole will not reduce the amount of risk in banks and finance companies in the capital markets.

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