American credit rating agency Fitch Ratings on Monday revised its growth forecast for India, saying the country’s Gross Domestic Product for the financial year 2020-’21 is expected to contract by 9.4%, instead of its earlier estimate of a 10.5% contraction, PTI reported.

The growth forecast for the financial years 2021-’22 and 2022-’23 remain unchanged at 11% and 6% respectively.

In its Global Economic Outlook, the rating agency said the coronavirus-induced recession has inflicted “severe economic scarring”on India, adding that the country needed to repair balance sheets and increase caution about long-term planning. “

Furthermore, increased financial-sector weakness – amid deteriorating asset quality – will hold back credit provision, Fitch said. “We now expect GDP to contract 9.4 per cent in the fiscal year to end March 2021 (FY21) (+1.1 percentage point), followed by +11 per cent growth (unchanged) and +6.3 per cent growth (+0.3pp) in the following years.”

The agency, however, noted some signs of economic revival. It said the Indian economy staged a sharper rebound in the July-September quarter from recession. The country’s GDP fell 7.5% year-on-year, up from a contraction of 23.9% in the April-June quarter.

“The rebound in activity was especially sharp in the manufacturing sector: output reached its pre-pandemic level in 3Q20 (July-September), and the manufacturing PMI hints at further gains,” it said adding that manufacturing was buoyed by strong demand for autos and pharmaceutical products, in particular. The rebound in the services sector, on the other hand, was more muted as containment measures have been scaled back only gradually.

‘Outlook is brighter due to expected rollout of vaccines’

Fitch said the brighter economic outlook for India was attributed to the expected rollout of various vaccines against the coronavirus by next year.

“India has pre-ordered 1.6 billion doses including 500 million doses of the Oxford/AstraZeneca vaccine,” the agency noted. “Distribution should allow a faster-than-expected easing of social-distancing restrictions and boost sentiment.”

The Serum Institute has tied up with British-Swedish pharmaceutical company AstraZeneca and Oxford University to produce the vaccine, which is known as Covishield in India. On Monday, Serum Institute’s Chief Executive Officer Adar Poonawalla announced that his firm has applied for emergency use authorisation of the vaccine.

However, Fitch said that it seemed unlikely that the vaccine would reach the majority of Indian population over the next 12 months, “given the huge logistical and distribution challenges in a heavily populated country like India”. Besides, “regional shutdowns are likely in the next few months while the virus is still spreading”, the agency added.

Global economy

For the global economy, the American rating agency projected a less severe decline in the GDP – a contraction of 3.7% in 2020-’21, compared to the 4.4 % projected in September.

It also revised up its annual world GDP growth forecast for 2021-’22 – but only modestly – to 5.3% from 5.2% . “We are now significantly more optimistic for 2022, as we assume vaccine rollout will facilitate a material easing in social distancing,” Fitch said.