Covid: Economic downside risks from second wave
The second wave of the coronavirus pandemic has posed a downside risk to economic activity in the April-June quarter of financial year 2021-22. However, the finance ministry said it expects a muted economic impact compared with the first wave.
The finance ministry’s department of economic affairs (DEA) in its monthly economic review for April said: “The second wave has posed a downside risk to economic activity in the first quarter of 2021-22. However, there are reasons to expect a muted economic impact compared with the first wave. Learning to ‘operate with Covid-19’, as borne out by international experience, provides a silver lining of economic resilience amidst the second wave.”
As cases have continued to soar since March, a number of independent economists, agencies and banks have cut real GDP forecasts for the current financial year, while more are expected to do the same in the coming days.
Standard & Poor’s has cut its 2021-22 GDP forecast for India to 9.8 per cent from 11 per cent under its moderate scenario and to 8.2 per cent under the severe scenario. The IMF has said it will revisit its 12.5 per cent GDP growth forecast for the year.
S&P Global Ratings said on Friday its outlook on India's sovereign debt remained stable, even though surging Covid-19 cases could threaten the strong economic recovery it has seen so far.
“Our downside scenarios suggest a less robust recovery in government revenues, and the severe downside scenario may entail additional fiscal spending,” they added.
“Our outlook on India’s sovereign rating remains stable...we do not expect there to be change in the rating level over the next two years. Currently that does remain the case,” said Andrew Wood, director, sovereign & international public finance ratings.
Meanwhile, Fitch Solutions has said India is likely to breach its fiscal deficit target of 6.8 per cent this fiscal mainly due to revenue shortfall.
“We at Fitch Solutions forecast the deficit to come in at 8.3 per cent of GDP in FY22... Revenue shortfall remains the main driver of our wider deficit view, as we expect the government to maintain its spending targets,” it said.