Economy’s mood: Now, Moody’s slashes India’s growth at 9.6% in 2021

Virendra Pandit 

New Delhi: The rating agencies’ race to ‘correctly’ predict India’s economic growth, after the waned second Covid-19 wave, continues. On Wednesday, it was the turn of Moody’s which pegged the economic growth in 2021 at 9.6 percent.

Moody’s Investors Service slashed India’s growth projection from its earlier peak projection of 13.9 percent to 9.6 percent for the 2021 calendar year and said faster vaccination progress will be paramount in restricting economic losses to the June quarter (April-June 2021).

In its report titled ‘Macroeconomics India: Economic shocks from second Covid wave will not be as severe as last year’s, Moody’s said high-frequency economic indicators show that with states now easing restrictions, economic activity in May is likely to signify the trough.

“The virus resurgence adds uncertainty to India’s growth forecast for 2021; however, it is likely that the economic damage will remain restricted to the April-June quarter. We currently expect India’s real GDP to grow at 9.6 percent in 2021 and 7 percent in 2022,” Moody’s said.

Earlier this month, Moody’s had projected India to clock a 9.3 percent growth in the current fiscal ending March 2022, but a severe second wave of the pandemic increased risks to India’s credit profile and rated entities.

Indian economy contracted by 7.3 percent in fiscal 2020-21 as the country battled the first wave, as against a 4 percent growth in 2019-20.

Stating that stringent lockdowns in economically significant states will mar April-June quarter economic activity, Moody’s said the 10 states that have been hardest hit by the second wave collectively account for more than 60 percent of the pre-pandemic level of India’s GDP.

Four key states – Maharashtra, Tamil Nadu, Uttar Pradesh, and Karnataka – contributed the largest shares among all states in the financial year 2019-20.

Moody’s said faster vaccination progress will be paramount in restricting economic losses to the current quarter. As of the third week in June, only about 16 percent of the population had received one vaccine dose; of those, only about 3.6 percent had been fully vaccinated.

“Mobility and economic activity will likely accelerate in the second half of the year as the pace of vaccinations picks up. The government recently announced a strategy to centralize vaccine procurement in order to boost vaccinations, which if successful, will support the economic recovery,” it added.

Moody’s expects the overall hit to India’s economy to be softer than that during the first wave last year. However, the pace of recovery will be determined by access to and delivery of vaccines, and the strength of the recovery in private consumption, which could be hampered by the deterioration of balance sheets of low- and middle-income households from job, income, and wealth losses.

“We assess the overall economic effect of the second wave to be softer than that during the first wave of the pandemic last year, although delivery of and access to vaccines will determine the durability of the recovery,” Moody’s added