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S&P revises India's FY21 GDP contraction forecast to 7.7% from 9% earlier

16 Dec 2020 Evaluate

S&P Global Ratings has revised India's FY21 Gross domestic product (GDP) growth forecast to (-) 7.7 percent up from (-) 9 percent estimated previously, on rising demand and falling COVID-19 rates. For the next fiscal, it has projected growth to rebound to 10 percent. Its revision in growth forecast for the current fiscal reflects a faster-than-expected recovery in the September quarter.

The US-based rating agency has stated that a faster recovery keeps more of the economy's supply side intact and can set India up for more prolonged above-average growth during the recovery phase. Besides, it said India is learning to live with the virus, even though the coronavirus pandemic is far from defeated. However, it noted that the reported cases have fallen by more than half from peak levels, to about 40,000 per day. It is no surprise that India is following the path of most economies across Asia-Pacific in experiencing a faster-than-expected recovery in manufacturing production.

S&P further said manufacturing output was about 3.5 per cent higher in October 2020 when compared to the year-ago period, while the output of consumer durables rose by almost 18 percent. It said this recovery underscores one of the more striking aspects of the COVID-19 shock -- the resilience of manufacturing supply chains. Again, as with demand, some slowing of output momentum has emerged more recently. It noted that the demand for goods -- not services -- drives India's recovery, and household savings have risen due to an uncertain outlook and constraints of social distancing. But, it said demand for durables is rising. It added that if consumers cannot or will not spend money on a vacation or eating out, they will divert some of that spending to goods.

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