Indian economy may clock double-digit growth in 2021: Moody's

The reimposition of virus management measures following a surge in Covid infections will dent economic activity and could hurt market and consumer sentiment, rating agency Moody’s said, warning of a threat to recovery. However, targeted containment measures, versus last year’s complete lockdown, and rapid vaccination will soften the hit on the economy, it said in a report released Monday.

The rating agency sees vaccination as the key tool to manage the second wave, but warned that shortages could slow inoculation drive.

Moody’s retained its forecast of double-digit growth in India’s gross domestic product (GDP) for FY22. In February, Moody’s had revised India’s FY22 growth outlook to 13.7% from 10.8% estimated earlier while maintaining sovereign credit rating at Baa3 (negative), the lowest investment grade rating.

“The announced countermeasures to combat the second wave — some of which are due to remain in place at least until the end of April — risk weakening the economic recovery,” Moody’s Investor Service said in the report headlined ‘Second wave of coronavirus infections poses credit-negative threat to economic recovery.’

India has been reporting a record increase in Covid-19 infections with the daily case count nearing twice the highs reached in September last year.

“However, given the focus on ‘micro-containment zones’ to deal with the current wave of infections, as opposed to a nationwide lockdown, we expect that the impact on economic activity will be less severe than that seen in 2020,” the report said.

India’s relatively low Covid-19 death count at 170,179 as of Monday, younger population and progress on vaccination will mitigate the credit-negative impact, it said. Taking these into account, India’s GDP was still expected to grow in double digits, given the low level of activity in 2020, Moody’s said. It has estimated a 7% contraction in FY21.

Japanese brokerage Nomura recently tempered its FY22 growth expectations for the Indian economy to 12.6% from 13.5% on account of the disruptions caused by the second Covid wave.

Moody’s noted that one of India’s most populous states and centres of economic activity, Maharashtra, went back into partial lockdown while other major states such as Uttar Pradesh, Karnataka and Delhi also recorded a sharp rise in cases.

Retail and recreation activity across India had dropped by 25% as of April 7, compared with February 24, according to Google mobility data.