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Moody’s slashes India’s GDP growth to zero in FY 21 from 2.6%

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On May 8, 2020 Moody’s slashed down India’s Gross Domestic Product(GDP) growth to zero for the current fiscal 2020-21 from its earlier forecast of 2.6%. In 2021-22 India’s GDP growth rate will bounce back to 6.6%.Moody's India's economic growth at zero' in FY21Major highlights

i.No change in sovereign rating which stands at ‘Baa2’ with ‘Negative’ outlook for India

ii.The negative outlook reflects an increase in risk that economic growth remains significantly lower than in the past & is triggered by COVID-19

iii.The outlook also partly shows weaker policy effectiveness to address economic and institutional issues(as per the update to its November 2019 rating forecast)

iv.The high government debt, weak social and physical infrastructure, and a fragile financial sector face additional pressures due to the coronavirus outbreak.

v.The outlook can be revised to ‘Stable’ if there is improvement in the fiscal situation & there is sustainable reform along with strong investment and GDP growth.

vi.Weakening of fiscal metrics could lead to downgrade, which will affect investment flow in India.

vii.The revised real GDP growth reflects that the output is likely to contract sharply in the 2nd quarter due to the lockdown, which results in weak economic activity for the year.

Ratings by other agencies

Fitch’s forecast of 0.8%, International Monetary Fund’s(IMF) 1.9%, World Bank’s 1.5-2.8%  and Asian Development Bank’s(ADB) estimate of 4%

Investment Information and Credit Rating Agency(ICRA) estimated a contraction of up to 2% and 0.4% by Nomura

Indian economy’s contraction

Has registered the last contraction in 1979-80 with (-) 5.2 per cent growth rate. Prior to this FY 1957-58: negative 0.4% , FY 1965-66: negative 2.6%, FY 1966-67: negative 0.1%  and FY 1972-73: negative 0.6%

‘Baa2’– is an investment grade rating with moderate credit risk

About Moody’s:
Headquarters– NewYork, United States
President & CEO– Raymond W. McDaniel, Jr.