India’s economy to contract 9% in FY21, says S&P

Standard & Poor’s (S&P) has revised the rate of fall in gross domestic product (GDP) to nine per cent for the current fiscal year from the 5 per cent it estimated earlier.

It assessed that impact of the rising Covid-19 cases on private spending and investment will be for a longer period than what was expected earlier. S&P said India’s high deficit limits the scope for fiscal stimulus and the targeted stimulus measures announced so far amount to about 1.2 per cent of GDP.

“This magnitude is lower compared with global averages. The International Monetary Fund (IMF) estimates that, on an average, comparable stimulus measures across global emerging markets have been about 3.1 per cent of GDP,” S&P added.

The potential for further monetary support is curbed by India’s inflation worries, S&P Global Ratings Asiapacific Economist Vishrut Rana said. “One factor holding back private economic activity is the continued escalation of Covid-19,” Rana added.

Rising Covid-19 cases in India will keep private spending and investment lower for longer, S&P said. S&P Global Ratings now expects the country’s economy to contract by 9 per cent in the current fiscal year, which ends on March 31, 2021.