Credit rating agency Moody’s Investors Service on Friday said it estimated India’s Gross Domestic Product growth to “hit zero” in the 2020-’21 financial year due to the lockdown to combat the coronavirus pandemic, PTI reported. However, the growth rate will improve to 6.6% by 2022, the agency said.
Moody’s warned that the “Covid-19 shock will exacerbate an already material slowdown in economic growth, which has significantly reduced prospects for durable fiscal consolidation”.
In March, the credit rating agency had pegged India’s growth rate for 2020-’21 at 2.5%. In April, it revised this downward to 0.2%. India had first imposed the lockdown on March 25, and then extended it first till May 3 and then till May 17.
Moody’s also warned that India’s sovereign rating could be downgraded if its financial sector health continues to weaken, Mint reported. “This would probably happen in the context of a prolonged or deep slowdown in growth, with only limited prospects that the government would be able to restore stronger output through economic and institutional reforms,” the rating agency said.
As of now, Moody’s has assigned Baa2 sovereign rating to India with a negative outlook. Moody’s said the outlook could be revised to “stable” if fiscal metrics stabilise. This credit rating measures the ability of an entity to pay back debt.
However, the credit rating agency added that the Rs 1.7 lakh crore relief package the Indian government announced in March will reduce the “depth and duration” of the slowdown. It said India’s credit strengths include a large and diverse economy, favourable demographic potential and a stable domestic financing base to fund the government debt.