Fitch cuts GDP growth forecast to 4.9% in FY20

New Delhi: Fitch Solutions, a part of global rating agency Fitch Ratings, on Monday cut its forecast for India's economic growth to 4.9 per cent in the current fiscal that ends March 31, saying manufacturing could come under pressure from weak domestic demand and supply chain disruptions due to the coronavirus outbreak.

The GDP growth is forecast to recover slightly to 5.4 per cent in 2020-21 (April 2020 to March 2021), it said. "We at Fitch Solutions are revising down our forecast for India's real GDP growth to 4.9 per cent in FY2019/20, from 5.1 per cent previously, and 5.4 per cent in FY2020/21, from 5.9 per cent previously," the agency said in its outlook for the country.

India's real GDP growth decelerated to 4.7 per cent in the third quarter (October-December) from an upwardly revised 5.1 per cent in the second quarter owing to slower government consumption, a steeper contraction in gross fixed capital formation and a smaller net exports contribution.

"A failure of the FY2020/21 Union Budget to provide support to the industry will also bring little reprieve for a sluggish industry already coming under heavy pressure from a credit squeeze following the collapse of several key Non-Bank Financial Companies (NBFCs)," it said.

NBFCs are a key channel in which consumers obtain loans for vehicle and housing purchases. "Our revision is due to our view for disruption in the automotive and electronics supply chain from the ongoing Covid-19 outbreak in China to weigh on India's export manufacturing sector, and for this to have negative knock-on effects on the broad services sector," Fitch Solutions said.

It expected a mild pick-up in growth in the next fiscal assuming an easing of the virus spread from June, which should see a broad-based improvement in the economic activity.

"We expect manufacturing activity to come under further pressure from weak domestic demand and also supply chain disruptions due to the Covid-19 outbreak, which started in China. Weak manufacturing activity would also have a knock-on impact on slowing services growth," it said.

It expected manufacturing and services to pick up in FY2020/21. "We also expect economic activity to be supported by an improvement in the agriculture sector through better harvest prospects and fiscal support announced in the FY2020/21 Union Budget."

The growth deceleration in the third quarter was mainly due to a collapse in gross fixed capital growth, which contracted by 4.5 per cent, and slowdown in government consumption growth to 11.8 per cent from 13.2 per cent in the second quarter.

"We expect manufacturing (14 per cent of GDP) growth to remain weak over the near term," it said noting that the contraction in manufacturing eased slightly to 0.2 per cent in Q3, from 0.4 per cent in Q2.