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    S&P further cuts India's FY21 GDP growth forecast to -9 percent from -5 percent

    S&P further cuts India's FY21 GDP growth forecast to -9 percent from -5 percent

    S&P further cuts India's FY21 GDP growth forecast to -9 percent from -5 percent
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    By CNBCTV18.com  IST (Published)

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    S&P Global Ratings has cut India's FY21 GDP forecast to -9 percent from -5 percent as it believes that rising COVID-19 cases in the country will keep private spending and investment lower for longer.

    S&P Global Ratings has cut India's FY21 GDP forecast to -9 percent from -5 percent as it believes that rising COVID-19 cases in the country will keep private spending and investment lower for longer.
    "One factor holding back private economic activity is the continued escalation of the COVID-19," said Vishrut Rana, Asia-Pacific Economist for S&P Global Ratings.
    It expects growth of 6.0 percent in fiscal 2022 and 6.2 percent in fiscal 2023.
    India's economy shrank 23.9 percent year over year in the March to June. The pandemic, and tight lockdown measures enforced to combat it, knocked private consumption by 26.7 percent while fixed investment sunk 47.1 percent. Higher welfare spending prevented an even sharper fall in growth, S&P Global noted.
    Agriculture cushioned the blow as it was the only major sector to expand, thanks to a favorable monsoon season.
    While India eased lockdowns in June, the agency believes the pandemic will continue to restrain economic activity.
    "As long as the virus spread remains uncontained, consumers will be cautious in going out and spending and firms will be under strain," the rating agency said.
    It believes the industrial activity is recovering faster than services. However, high-frequency indicators suggest that output is still lower relative to the same period last year and hence growth for the June–September quarter will be a negative year on year.
    "The potential for further monetary support is curbed by India's inflation worries," said Rana.
    The Reserve Bank of India has cut policy rates by 115 basis points so far this year, to 4 percent. However, rising food inflation has pushed inflation to 6.9 percent in July, higher than the upper band of the central bank's 2%-6% target range. This will constrain the central bank from cutting policy rates further, the agency noted.
    Moreover, India's high deficits limit the scope for fiscal stimulus, it said. While fiscal spending increased during the March–June quarter, the targeted fiscal stimulus measures announced so far amounts to about 1.2 percent of GDP.
    This magnitude is lower compared with global averages. The International Monetary Fund estimates that on average comparable stimulus measures across global emerging markets have been about 3.1 percent of GDP.
    S&P Global expects a degree of normalization to result in the growth of about 10 percent in the following fiscal year as consumers resume the discretionary activity that they are curtailing during the pandemic. A significant part of the growth rebound is due to the very weak base during the current fiscal year, it said.
    The agency expects a larger permanent loss in output of 13 percent over the next three years.
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