Moody's cuts India growth forecast for 2021 to 9.6%

Moody’s Investors Service on Wednesday cut India’s growth projection for the calendar year 2021 to 9.6% from its earlier estimate of 13.9% and said faster vaccination progress will be paramount in restricting economic losses to the June quarter.

“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% in 2021 and 7% in 2022,” Moody’s said.

Earlier this month, Moody’s had projected India to clock a 9.3% growth in the current fiscal ending March 2022, but a severe second Covid-19 wave has increased risks to India’s credit profile and rated entities.

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High-frequency economic indicators show that the second wave of Covid-19 infections hit India’s economy in April and May. With states now easing restrictions, economic activity in May is likely to signify the trough, it said in a report titled ‘Macroeconomics – India: Economic shocks from second Covid wave will not be as severe as last year’s’.

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

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

On infrastructure performance, another report said the second coronavirus wave will affect its infrastructure sectors to varying degrees, with power companies and ports better able to weather the impact of pandemic-induced disruptions compared with airports and toll roads.

The recovery of Indian airports will get further pushed back following the recent surge in new infections and regional lockdowns. International traffic will take even longer to recover given the closure of borders.

By mid-May, daily domestic passenger traffic fell to just around 25% of the level recorded in February before the second wave, it said.

Prior to the second wave, domestic passenger traffic had gradually recovered to around 60% of the December 2019 level.

A key driver for recovery for airports would be an increase in vaccinations as outlined by the government, which would help reduce concerns over potential infections, and the risk of further waves and re-imposition of restrictions, the report said.