Coronavirus Impact: Fitch Cuts India GDP Growth Forecast To 5.1% For FY21

Fitch Ratings is the latest global agency to cut India’s GDP growth forecast in the face of the coronavirus outbreak.

People purchase food and other goods at a government store in New Delhi, India. (Photographer: T. Narayan/Bloomberg)
People purchase food and other goods at a government store in New Delhi, India. (Photographer: T. Narayan/Bloomberg)

Fitch Ratings on Friday cut India's GDP growth forecast to 5.1 percent for 2020-21, saying the coronavirus outbreak is likely to hit business investment and exports.

Fitch had in December 2019 projected India's growth at 5.6 percent for 2020-21 and 6.5 percent in the following year.

In its Global Economic Outlook 2020, Fitch said the number of people affected by coronavirus will keep rising in the coming weeks but that the outbreak will remain contained. However, there are downside risks to this scenario.

"Supply-chain disruptions are expected to hit business investment and exports. We see GDP growth to remain broadly steady at 5.1 percent in fiscal year 2020-2021 following growth of 5.0 percent in 2019-2020," Fitch said.

For 2021-22, the credit ratings agency projected India's growth at 6.4 percent.

"The outbreak of the virus is hitting sentiment, while local governments have rolled out measures to contain the spread of the virus, such as closing schools, cinemas and theatres.

“While India's linkages with China (e.g. trade and tourism) are modest, manufacturers in India are heavily reliant on key Chinese intermediate inputs especially of electronics and machinery and equipment," Fitch said.

The World Health Organization has declared Covid-19 a pandemic. Over 2 lakh people have been infected globally claiming over 9,000 lives. In India, there are about 195 positive cases and four deaths so far due to the deadly virus.

The difficulties facing the Indian economy have been exacerbated by the Yes Bank crisis, Fitch said.

"Fragilities in the financial system will further undermine sentiment and domestic spending," the ratings agency. “The overall financial system remains burdened with weak balance sheets, which will limit any upside to credit and growth despite policymakers' efforts in recent months to ease stress.”