Moody's revises India's 2020 GDP growth forecast to 10.6 per cent contraction from 11.5 per cent earlier

Moody′s on Thursday raised India′s gross domestic product (GDP) forecast for 2020 to 10.6 per cent contraction, from an 11.5 per cent contraction projected earlier. It also revised calendar year 2021′s GDP upwards to 10.8 per cent compared to the earlier forecast of 10.6 per cent.

The report released by Moody′s Investor Service said consumer confidence in India remained relatively low amid a continued elevated number of daily new coronavirus cases, although it had come down from the peak in September. "We currently expect India′s growth to reach 10.8 per cent in the fiscal 2021 (ending March 2022), compared with our earlier forecast of 10.6 per cent, and to settle around 6 per cent in the medium term. We have revised our real, inflation-adjusted GDP forecast for fiscal 2020 to a 10.6 per cent contraction, from a 11.5 per cent drop previously," stated the report.

Moody′s also forecast government debt to increase to 89.3 per cent of GDP in 2020 and decline to 87.5 per cent in 2021, from an already elevated 72.2 per cent in 2019.

"The country′s mixed track record on revenue-raising measures lowers prospects for fiscal policy-driven budget consolidation. A sustained increase in GDP growth would therefore be a major driver of any durable future fiscal consolidation," the report stated.

It also said general government fiscal deficit should remain wide, reaching around 12 per cent of GDP, with some upside risk, in 2020 and narrowing to about 7 per cent of GDP over the medium term, still above the deficit of 6.5 per cent of GDP in 2019.

On November 9, the 15th Finance Commission submitted its report for 2021-25 to the president. According to media reports, it stated that the central and state governments should focus on debt consolidation and comply with the fiscal deficit and debt levels in their Fiscal Responsibility and Budget Management Acts.

On November 12, India announced a new fiscal package amounting to Rs 2.7 trillion. The latest measures aimed to increase the competitiveness of India′s manufacturing sector and create jobs while supporting infrastructure investment, credit availability and stressed sectors.

"The latest stimulus package also targets job creation with a new wage subsidy scheme lasting until the end of June 2021. Under the program, the government will fund provident fund contributions for eligible new employees hired within a two-year period, starting in October, and cover the employer′s contribution on top of the employee′s contribution for companies with 1,000 employees or less. Eligibility is restricted to employees earning a monthly wage of less than Rs 15,000," the reported stated.

Moody′s suggested the wage support provided to businesses and the push to scale up production under the PLI scheme could increase employment in India′s persistently soft labour market.

"For the rural sector, this is supplemented by the Rs 100 billion set aside for the existing rural jobs guarantee scheme. The latest package provides additional help for the rural sector through the allocation of Rs 650 billion for fertilizer subsidies as the winter cropping season ensues," the report said.