Fitch: Economy will suffer lasting damage but...

January 14, 2021 10:22

The Indian economy will suffer lasting damage from the coronavirus crisis and after an initial strong rebound in FY22 (fiscal year ending March 2022) growth will slow to around 6.5 per cent a year over FY23-FY26, Fitch Ratings said on Thursday.

"A combination of supply-side scarring and demand-side constraints - such as the weak state of the financial sector - will keep the level of GDP well below its pre-pandemic path," it said in commentary on the Indian economy.

Fitch said India's coronavirus-induced recession has been among the most severe in the world, amid a stringent lockdown and limited direct fiscal support. The economy is now in a recovery phase that will be further supported by the rollout of vaccines in the next months.

"We expect gross domestic product (GDP) to expand by 11 per cent in FY22 (April 2021 to March 2022) after falling by 9.4 per cent in FY21 (April 2020 to March 2021)," it said. India's economy had been losing momentum even ahead of the shock delivered by the COVID-19 crisis. The rate of GDP growth sank to a more than ten-year low of 4.2 per cent in 2019, down from 6.1 per cent the previous year.

The pandemic bought a human and an economic catastrophe for India, with nearly 1.5 lakh deaths. Though the deaths per million are significantly lower than in Europe and the US, the economic impact had been much more severe. GDP in April-June was 23.9 per cent below its 2019 level, indicating that nearly a quarter of the country's economic activity was wiped out by the drying up of global demand and the collapse of domestic demand that accompanied the series of strict national lockdowns. Further, a 7.5 per cent decline in GDP in the following quarter pushed Asia's third-largest economy into an unprecedented recession.

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