Even when combined with the government’s fiscal stimulus earlier in 2020, the size of the measures remains modest. In total, the two rounds of stimulus bring the government’s direct spending on coronavirus-related fiscal support to around 1.2 per cent of GDP. This compares with an average of around 2.5 per cent of GDP for Baa-rated peers as of mid-June. While the latest stimulus will spur consumer spending over the near term as Covid restrictions continue to be eased and India’s festive season begins, the support to growth will be minimal, the agency said.
The government expects the new stimulus to add around 0.5 per cent of GDP – a small boost compared with the 11.5 per cent drop in real GDP for year ending March 2021. Consumer confidence has remained subdued even as India has emerged from a very stringent nationwide lockdown, which drove a 24.5 per cent contraction in private consumption in the April-June quarter, compared with the previous year.
Moody’s has forecast that growth will rebound to 10.6 per cent in year ending March 2022, reflecting the comparison with the low GDP levels of previous years as economic activity gradually normalises. “Over the medium term, we expect growth to settle around 6 per cent, with downside risks due in part to ongoing stress within the financial system,” the agency said.
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