India’s GDP: Moody’s 9.3% growth forecast for 2021-22 offers breather

A day after the National Statistical Office (NSO) announced that India’s gross domestic product (GDP) — a measure of the economy’s growth — had contracted 7.3% in fiscal 2020-21 (FY21), Moody’s came out with a forecast that offered some relief.

The Indian economy will rebound in the current financial year (FY22) and grow 9.3%, a PTI report quoted Moody’s Investors Service as saying on Tuesday. However, a severe second wave COVID could dent India’s credit profile and rated entities, it added.

Mighty fall

On Monday, the NSO released India’s GDP numbers for the fourth-quarter (Q4) of FY21, ended March 2021, and the full year FY21. While the economy grew a timid 1.6% in Q4, it tumbled 7.3% for the entire financial year, it was revealed. In FY20, the GDP had grown 4%.

Also read: COVID’s chills and fevers are hitting small businesses in waves

The only two sectors that bucked the de-growth trend last fiscal were ‘Agriculture, Forestry and Farming’ and ‘Electricity, Gas, Water supply and Other utility services’, according to NSO data. These were essentially services that had to be kept going, COVID or not. Not surprisingly, tourism, transport and communications were among the sectors that took the worst hit.

Worst-ever contraction

The last time the GDP de-grew was over 40 years ago, in 1979, but even then, the fall had been only 5.2%. Media reports pointed out that the 7.3% GDP contraction of FY21 was India’s worst ever since Independence.

India’s #GDP has contracted five times since 1947, but never as bad as 7.3%https://t.co/crEt4hZKjM

By @pabsgill pic.twitter.com/0BFiBaTAZe

— Business Insider India?? (@BiIndia) June 1, 2021

India has witnessed negative growth (contraction in GDP) just five times in its history, said a Business Insider report. It added that those five instances of recession were triggered by high fuel prices, droughts or floods, which in turn hit the farm sector hard.  This time round, the nationwide COVID crisis and, as economists point out, its poor handling have pummelled the GDP.

While the economy had been on shaky ground for a few years before the onset of COVID, the pandemic threw it completely out of gear. A sudden, strict lockdown announced in March 2020, which brought all manufacturing, trade and services activity to a halt, drastically impacted the economy.

The mass movement of migrant labourers back to their hometown, the unpreparedness of the healthcare infrastructure for the viral onslaught, and the slow start of the vaccination drive made sure the economy did not have a fighting chance.

Pandemic ‘scars’

The second wave of COVID, which began in April 2021 and was at its zenith in May in most parts of the country, could impede India’s efforts to put its economy back on track. Moody’s said it expects a decline in economic activity in the first quarter of FY22 (ended June 2021) due to the imposition of lockdown by most state governments. ‘Behavioural changes on fear of contagion’ may also impact business activity, PTI said in its report.

The pandemic will leave new economic scars and deepen pre-pandemic constraints, said the rating agency. India’s long-term GDP growth would average at about 6%, it added. How the Centre contains the virus spread, and how it steps up the vaccination drive, will impact both the health and economic outcomes, the PTI report quoted it as saying.