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Economic damage for India from lockdown to be significant: Moody’s

Economic damage for India from lockdown to be significant: Moody’s
May 22
14:18 2020

NEW DELHI: Moody’s Investors Service said on Friday that economic damage as a result of India’s coronavirus lockdown will likely be extensive and reflect the country’s inherent economic vulnerability and fiscal constraints.

The report pointed out that this will have wide-ranging effects on both public and private sectors. Moody’s Investors Service has released a report titled “Coronavirus – India: Lockdown compounds economic challenges as credit risks rise in many sectors”.

“We expect the economic fallout from the coronavirus outbreak to weigh on the already fragile household consumption which, coupled with sluggish business activity, will result in a sharp decline in India’s economic growth in fiscal 2020-21,” says Deborah Tan, a Moody’s Assistant Vice President and Analyst.

Even before the coronavirus outbreak, the economy had already been growing at its slowest pace in six years. Adding the impact from the outbreak, Moody’s now expects India’s real GDP to contract in the fiscal year ending March 2021 (fiscal 2020-21) compared with an earlier projection of zero growth.

The Reserve Bank of India (RBI) Governor Shaktikanta Das in his monetary policy review statement projected that the economy will contract in FY21. Moody’s estimates that economy is also expected to recover somewhat more strongly in fiscal 2021-22 relative to an earlier forecast of 6.6% growth.

Among corporates, the auto, oil & gas and mining sectors will bear the brunt of the downturn, given their sensitivity to consumer demand, sentiment and supply chain disruptions. The economic slowdown will also hit the performance of commercial vehicle and MSME loans, with the effects more significant if the outbreak spreads and suspension of business activity is prolonged.

“Moreover, we expect the economic shock from the coronavirus to result in significant slippage from the central government’s budgeted deficit target for fiscal 2020-21,” added Tan. While the announced stimulus will bring a degree of relief to rural households and micro, small and medium-sized enterprises (MSMEs), the measures are unlikely to offset lower activity resulting from the extended lockdown.

Banks and finance companies accordingly will see a broad-based deterioration in asset quality, while finance companies and smaller private banks will also face funding and liquidity issues, Moody’s Investors Service said. Slowing premiums, increasing medical claims and liquidity pressures will pose risks for insurers. While general and health insurers will see some surge in medical premiums, the sector’s challenges will continue, it added.

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