Fitch sees global recession, cuts India growth forecast to 2%

MSME, recession, export
While the advanced economies have woken up to the reality that monetary easing alone would not ensure growth, Budget 2021 has made a hasty retreat from the fiscal steps taken in previous budgets.

Fitch Ratings has lowered India’s GDP growth projection for the current financial year to 2%, as it fears a global recession due to the disruption caused by the new coronavirus outbreak. The year is likely to witness the slowest growth in the country in the last 30 years.

“Fitch now expects a global recession this year and recently cut our GDP growth forecast for India to 2% for the fiscal year ending March 2021,” the rating agency said in a statement on Friday. Fitch had projected the Indian economy to grow at 5.1%. Moody’s Investors Service had cut the country’s growth forecast for the year ending December 2020 to 2.5% from 5.3%.

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A lockdown in China had resulted in the disruption of regional manufacturing supply chains. This has caused a fall in local discretionary spending and exports despite China lifting the lockdown. The rating firm had lowered India growth forecast for the year to 5.1% on March 20 from its December 2019 estimate of 5.6%.

The new coronavirus disease or Covid-19 was first reported in China in December 2019. The highly infectious disease has now spread to most parts of the world, affecting more than a million people worldwide, causing more than 55,000 deaths as on Friday.

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The Indian economy was already in the grip of a slowdown when the coronavirus outbreak happened. It grew 4.7% in the three months to December 2019, which is the slowest pace in 27 quarters. The growth rate for the three months to June was 5.6% and that for the second quarter ended September 2019 was 5.1%. The government had projected the economy to grow at 5% in the financial year ended March 2020, but the coronavirus outbreak could have a huge impact on this forecast.

The rating agency said micro, small and medium enterprises as well as the services industry will be hit the hardest because of a fall in consumer spending. The measures to contain the Covid-19 outbreak will put pressure on the performance of India’s non-bank financial companies. NBFCs traditionally lend to smaller businesses with little cash buffer and any crisis will affect their ability to repay loans, the Fitch statement said.

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“These developments threaten to derail the incipient recovery in India’s credit environment,” the statement said. The Rating Watch Negative on Indian NBFCs reflects increased uncertainty over their credit profiles, it said.

The NBFCs also have exposure to commercial-vehicle lending, microfinance loans, and construction funding that could face problems due to the coronavirus-induced slowdown. Short-term lending such as consumer-durables and gold loans could face portfolio run-offs, affecting profitability.

The Narendra Modi government has announced a Rs 1.7 lakh crore stimulus package to boost economic growth and reduce the human and economic cost of the shutdown. The Reserve Bank of India has taken steps to inject Rs 3.74 lakh crore into the system to improve liquidity.