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The S&P Global rating of June 24, 2021, lowered its FY22 growth forecast for India to 9.5 percent from 11 percent earlier and once again warned of the risk to current forecasts due to the COVID-19 pandemic. The global rating agency said the growth forecast was affected by tight restrictions imposed across the country in April and May 2021, resulting in a sharp contraction in economic activity.

The agency also said the damage to the public and private sectors will slow growth over the next few years, leading to a projected 7.8% growth in the next fiscal year ending March 31, 2023. The current budget is expected to growth was originally double-digit, but the second wave of COVID19.

Earlier on June 4, the Reserve Bank of India (RBI) also cut India's growth forecast to 9.5 percent for this fiscal budget from the 10.5 percent it had previously forecast.

According to S&P Global Rankings, exports and manufacturing have suffered less compared to 2020, but service and consumption metrics such as car sales were disrupted sharply in May 2021. Consumer confidence also remained low. The number of new cases of COVID-19 is falling every day and mobility is recovering, however, the agency expects the recovery this time to be less dramatic than in late 2020 and early 2021.

The S&P said that even when the economy reopens, households will focus more on saving recovery and less spending as they depleted their previous savings during the lockdown. The agency added that the soft monetary and fiscal policy will continue and no new incentives will be introduced.

RBI has no right to cut interest rates

S&P also said that if inflation is above 6 percent, RBI has no right to cut interest rates. In addition, fiscal policy will be constrained by limited wiggle room as the fiscal 22 budget, adopted prior to the second wave of COVID-19, already targets a huge government deficit of 9.5% of GDP.

India's Growth Estimates by Other Agencies

Moody's forecast India's growth rate of 9.3% in fiscal 22. The World Bank cut India's GDP growth rate at the end of March 2022 to 8.3 percent from 10.1 percent previously projected. ICRA also estimated India's growth at 8.5% in FY 22. Barclays forecast India's economic growth at 9.2 percent.

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