Fitch Solutions on Monday slashed its estimate for India's GDP growth in the fiscal starting April 1 to 4.6 per cent due to weaker private consumption and contraction in investment amid coronavirus outbreak, costing economies around the globe.
The growth estimate for 2020-21 fiscal (April 2020 to March 2021) compares with a 4.9 per cent forecast in the current 2019-20 that ends on Tuesday.
"At Fitch Solutions, we are revising India's FY2020/21 (AprilMarch) real GDP growth forecast to 4.6 per cent, from 5.4 per cent previously, which reflects our view for a slowdown from our FY2019/20's estimate of 4.9 per cent," the rating agency said.
It said despite the Rs 1.7 lakh crore economic package announced last year, private consumption growth would come under strong headwinds over the coming months.
The lower growth estimate, it said, is "due to weaker private consumption and a contraction in investments, although a higher net exports contribution and higher government consumption should help blunt the economic blow from Covid-19".
Risks to the forecast are still on the downside, given that the outbreak in India, as suggested by its relatively low number of reported Covid-19 infections appears to be just beginning.
The number of cases reported "still appear improbably low" especially considering that India is the world's second-most populous nation with a population of over 130 crore.
"A weak healthcare system, with already stretched medical facilities, will also inhibit India's ability to 'flatten the infection curve', which informs our view for a sharp negative impact to the economy over H1FY2020/21 at least," Fitch said. "As such, we expect the outbreak to worsen significantly over the coming months."
"We now expect private consumption to come under pressure and also for investments to register a full-year contraction," Fitch Solutions said. "That said, a higher net exports contribution, due to a sharper imports contraction versus exports, and higher government consumption will aid to cushion the blow."
"Notwithstanding weaker profits owing to a sharp growth deceleration since Q1 FY2018/19, which has already reduced capital available for business reinvestment, a continued deceleration in year-on-year commercial credit growth also points towards a tepid investment outlook over the coming months."