Flitch Ratings cuts India’s growth forecast to 10 per cent for FY22

Fitch Ratings on July 7, 2021, cut down India’s growth forecast to 10 per cent for FY22 from the earlier 12.8 per cent forecast in March 2021.

During the second wave of the COVID-19 pandemic, the lockdowns slowed the recovery and negatively impacted the banking sector in the country, the global rating agency stated.

The Agency further underlined that the restrictions across the country during the second wave of pandemic slowed the recovery and left banks with a moderately worse outlook for revenue generation and business prospects in FY22.

Flitch Ratings: How did pandemic affect Indian banks?

• Flitch explained in its report that the regulatory relief measures postponed underlying asset-quality issues for now. But it does warn that the medium-term performance of banks will be affected in case of a further setback in the economic recovery.

• The Agency explained that the operating environment currently poses a challenge for banks. There are limited business opportunities and scope for revenue growth.

Fitch Ratings: Why could India not achieve 12.8 per cent?

• Flitch explained that the localized lockdowns during the second wave across the country did not lead to complete halt of economic activities as it happened in 2020 during the first wave of the pandemic.

• However, the second wave did disrupt key businesses that led to a setback in the recovery and did not meet Fitch’s earlier predicted 12.8 per cent recovery rate for FY22.

Flitch Ratings: India’s rebound potential is better

• However, Flitch stated that the rebound of the economy of India looks better than most comparable BBB- peers because the agency does not anticipate a structurally weaker real GDP growth outlook. Though it does warn that if the business and consumer activities are further affected by the COVID-19, India’s medium-term growth could suffer.

• Currently, the global rating agency predicts India’s medium-term growth stands at 6.5 per cent.

Flitch Ratings: Vaccination is key to economy revival

• Flitch Ratings stated that rapid vaccination can lead to a sustainable revival in business and consumer confidence.

• A low vaccination rate exposes India to further waves of COVID-19  pandemic and that could affect economic recovery.

• “Only 4.7 per cent of its 1.37 billion population was fully vaccinated as of July 5, 2021, which poses risks to the prospects of a meaningful and sustainable economic recovery,” the agency further stated.

Various agencies cut India’s GDP for FY22

• India’s growth for FY22 was estimated to be in double digits, however, various agencies slashed growth projects of the country owing to the severe second wave of the pandemic.

• RBI slashed India’s GDP to 9.5 per cent from 10.5 per cent.

• S&P Global Ratings cut India’s growth to 9.5 per cent.

• Moody’s expects India’s growth for 2021 at 9.6 per cent and 9.3 per cent for FY22.

• World Bank cut India’s GDP for FY22 to 8.3 per cent from 10.1 per cent.

• ICRA projected India’s GDP at 8.5 per cent.

• Barclays slashed India’s GDP to 9.2 per cent.