Fitch Ratings Sees India's Medium-Term Growth Slowing
Traffic travels along a highway as residential buildings stand in the background in the Chembur area in Mumbai, India. (Photographer Dhiraj Singh/Bloomberg)

Fitch Ratings Sees India's Medium-Term Growth Slowing

Fitch Ratings expects medium-term growth rates for the Indian economy to slow after an expected rebound in 2021-22. This as supply-side scarring and demand-side weakness persist.

“The Indian economy will suffer lasting damage from the coronavirus crisis and after an initial strong rebound in FY22 (fiscal year ending March 2022), growth will slow to around 6.5% a year over FY23 to FY26,” the rating agency said in a note on Thursday.

Factors such as the weak state of the financial sector will keep the level of GDP well below its pre-pandemic path, the rating agency said.

The Indian economy is set to contract 7.7% in 2020-21 but growth rates are set to rebound sharply in the next financial year. Fitch expects real GDP to contract 9.4% this fiscal and grow 11% next year. “The economy is now in a recovery phase that will be further supported by the rollout of vaccines in the next months...”

Beyond that, medium-term recovery may be slow.

Supply-side potential growth will be reduced by a slowdown in the rate of capital accumulation — investment has recently fallen sharply and is likely to see only a subdued recovery. This will weigh on labour productivity and our projection of supply-side potential GDP growth for the six-year period, FY21 to FY26, has been lowered to 5.1% p.a. compared to our pre-pandemic projection of 7% p.a.
Fitch Ratings

Constrained credit supply amid a fragile financial system, according to the rating agency, is another headwind for investment. Appetite for lending will be subdued, particularly as credit-guarantee and forbearance measures rolled out in the crisis start to be unwound, it said.

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