India's growth to slow to 6.5% after rebound: Fitch

The Indian economy will suf fer lasting damage from the coronavirus crisis, with growth slowing down af ter an initial strong rebound next fiscal, Fitch Ratings said on Thursday, forecasting the GDP at well below its prepandemic levels even af ter the cr isis has passed.

In a report titled 'India Set for Slow Medium-Term Recover y', Fitch said af ter an initial strong rebound in the fiscal year begin ning April 2021, growth will s low to around 6.5 per cent a year over FY23-FY26 (April 2022 to March 2026).

India's coronavirus-induced recession has been among the most severe in the world, amid a stringent lockdown and limit ed direct fiscal support, it said.

The Indian economy had been losing momentum even ahead of the shock delivered by the CO VID-19 crisis. The rate of GDP growth sank t o a more than the ten-year low of 4.2 per cent in 20 19, down from 6. 1 per cent in the previous year.

The pandemic brought a human and economic catastrophe for India, with over 1.5 lakh deaths. Though the deaths per million are significantly lower than in Europe and the US, the economic impact had been much more severe.

The GDP in April-June was 23.9 per cent below its 2019 level, indicating that nearly a quarter of the country's economic activit y was wiped out by the dr ying up of global demand and the collaps e of domestic demand that accomp anied the series of strict national lockdowns.

Further, a 7.5 per cent decline in GDP in the following quarter pushed Asia's third-largest economy into an unprecedented recession.

The economy is now in a r ecovery phase that will be further supported by t he rollout of vaccines in the next months.

"We expect the gross domestic product (GDP) t o expand by 11 per cent in FY22 (April 2021 to March 2022) af ter falling by 9.4 per cent in FY21 (April 2020 to

March 2021)," Fitch said.

It saw growt h at 6.3 per cent in FY2 3 and 6.6 per cent in the following three fiscals.

"The expected rollo ut of various vaccines in 2021 prompted us to raise our GDP growth p rojections for the fiscal years ending March 202 2 and 2023 (FY22 and FY23) to 6.3 per cent (from 6 p er cent previously)," it said.

The growth will be supported by "expectation of the rollout of an effective vaccine, but we expect the level of GDP to remain well below its pre-pandemic path even af ter the health crisis has passed," the rating agency said.

The rollout of effective vaccines brings for ward the time by which the economy will normalise, Fitch said. "We see the Indian GDP rebounding sharply in 2022. However, the amount of spare capacity in the economy is likely to remain elevated, even by 2025, as demand will be held back b y lacklustre credit supply." India has pre-ordered 1.6 billion doses of vaccines, including 500 million doses of the Oxford/AstraZeneca vaccine.

"This is quite a high number - even accounting for the size of the population - for an emerging market," Fitch said. "India also produces large amounts of vacc ine doses of its own." Dis tribution should allow a faster - than-previously-expected easing of soc ial-distancing restrictions and boost sentiment.