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New Delhi: After a contraction in the current financial year, India’s economy is forecasting a bounce-back next year with a rapid growth rate of 9.5 percent, provided it survives further deterioration in the health of the financial sector, Fitch Ratings said on Wednesday. said.
The coronovirus epidemic will lead to the shrinking of an already slowing economy in 2020-21 that began in April. Fitch Ratings has projected a 5 percent contraction in GDP in the current financial year.
“The epidemic has significantly weakened India’s growth outlook and faced challenges posed by high public-debt burdens,” Fitch Ratings said in an APAC Sovereign credit overview released on Wednesday.
“After the global crisis, India’s GDP growth is likely to return to a higher level than peers in the ‘BBB’ category, provided it survives further deterioration in the health of the financial sector as a result of the epidemic,” it said. Is estimated to be. Next year.
India established the world’s largest lockdown to counter the novel coronovirus, stopping almost all economic activity on 25 March.
Lockdown has been repeatedly extended, although some infections have been reduced from May 4 in areas with fewer infections.
“However, new cases are steadily increasing,” it said.
To support the economy, the Reserve Bank of India (RBI) has eased monetary policy by cutting policy rates and providing liquidity through long-term repo operations. Prudential requirements for banks have also been reduced to free up liquidity for loans.
The rating agency said, “The government has announced stimulus measures up to 10 percent of GDP, of which the fiscal component of about 1 percent of GDP is much lower than many of India’s peers.”
General government debt was already at 70 percent of GDP in 2019-20, above 42 percent of the ‘BBB’ rating. India’s public debt / GDP ratio is projected to grow to 84 percent of GDP in 2020-21 – when Fitch Ratings has confirmed its ‘BBB-‘ rating in December 2019.
“It’s based on our expectation of slow Economic Development In fiscal year 2011 and given the large fiscal deficit, the government’s fiscal response is restrained, “it said.
“The credit profile is strengthened by relative external resilience stemming from solid foreign-reserve buffers, but weakened by some weak structural factors, including governance indicators and per capita GDP.”
Listing positivity for India, Fitch Ratings stated that there was greater confidence in the continued reduction in general government debt over the medium term to levels closer to the ‘BBB’ peer. In addition, there is the potential for high sustained investment and growth rates without creating macroeconomic imbalances, such as from successful security reform implementation.
Among the negatives was a material increase in the fiscal deficit, keeping the gross general government debt / GDP ratio in a continuous upward trajectory.
Other negatives were loose macroeconomic policy settings that lead to persistently high inflationary returns and widening current-account deficits, which would increase the risk of external funding stress.
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