Moody’s cuts 2021 India’s growth forecast to 9.6 pc

Flagging low innoculation rate, it said faster vaccination progress will be paramount in restricting economic losses to the current quarter.

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 Covid-19 vaccination will be paramount in restricting economic losses to June quarter.

The US-based rating agency said high-frequency economic indicators show that the second wave of Covid-19 infections hit India’s economy in April and May. With states now easing restrictions, economic activity in May is likely to signify the trough, it said in a report on India.

“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 in a report titled “Macroeconomics India: Economic shocks from second Covid wave will not be as severe as last year’s”.

Flagging low innoculation rate, it 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.

“While infection rates have been declining and restrictions relaxed in many regions, vaccination rates remain low. As a result, the risk of subsequent waves that could require further lockdowns cannot be ruled out. Thus, we expect a more gradual recovery in economic growth for fiscal year ending March 2022,” Moody’s said in a separate report on India’s infrastructure sector.

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. The 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.

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.

“Mobility and economic activity will likely accelerate in the second half of the year as the pace of vaccinations pick up. The government recently announced a strategy to centralise vaccine procurement in order to boost vaccinations, which if successful, will support the economic recovery,” it added.

Moody’s expects the overall hit to India’s economy to be softer than that during the first wave last year. 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.

It said airports and toll roads will face increased difficulties following the second wave and the recovery of Indian airports will get further pushed back following the recent surge in new infections and regional lockdowns.

Even though domestic and international traffic should rise in the second half of fiscal 2022, on the back of easing infection rate and movement restrictions, the disruption caused by the second wave will likely lead to lower traffic and revenue in fiscal 2022, and potentially fiscal 2023, Moody’s added.

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