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India’s medium-term growth to slow down after initial rebound: Fitch Ratings

Updated : January 15, 2021 03:52 PM IST

According to a recent Fitch Ratings report, India’s medium-term growth is likely to slow to around 6.5 percent after an initial rebound. Fitch also says that India’s COVID-19 induced recession has been amongst the most severe in the world and that the economy will suffer lasting damage.

Maxime Darmet, Director - Enhanced Analytics (Sovereigns) at Fitch Ratings in an interview to CNBC-TV18 said, “The rebound looks quite sharp in the very short term. We are forecasting an 11 percent rebound for the fiscal year ending March 2022.”

Darmet said that in the medium term, Indian growth is likely to be severely damaged due to the lack of fiscal support and weak financial sector.

“India is starting from a low base and it has been heavily affected by the lockdown which was one of the most stringent in the world. The fiscal policy response has been quite underwhelming in regards to the depth of the recession. Nothing of this sort you have seen in advanced economy where fiscal policy has been eased very sharply to cushion the impact of the pandemic on the economy. But in India, we have not seen a big cushion from fiscal policy and I think for the medium term Indian growth is going to be quite severely damaged by the lack of fiscal support and weakness of the financial sector,” he said.

He said that the manufacturing sector is the key driver of the rebound, but over the medium term he does not see a big shift the relative weight of the manufacturing sector versus service sector.

“The manufacturing sector is definitely leading the recovery as we speak and it is pretty much the case in India. The rollout of the vaccine will help but manufacturing sector is really the prominent driver of the rebound. However, over the medium term, for India, we don’t see a big shift in the relative weight of the manufacturing sector versus the service sector because we don’t see big upside for India manufacturing to pick up noticeably,” he said.

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