UBS cuts India GDP growth forecast to 5.1% for FY21

UBS cuts India GDP growth forecast to 5.1% for FY21

Swiss brokerage UBS sharply cut its 2020-21 GDP growth forecast for India to 5.1 percent on fears around the coronavirus outbreak and also weak credit growth domestically. The brokerage also cut its FY20 growth estimate marginally to 4.8 percent.

The GDP growth is set to slip to a decadal low of 5 percent for FY20 as per official estimates and hopes of a revival are being pinned on the next fiscal.

The brokerage's economist Tanvee Gupta Jain said even though there are only over 50 positive coronavirus cases in India so far, the fear and uncertainty over its impact could worsen near-term consumer sentiment and hit domestic demand.

Additionally, there will be sectoral impact on production due to shortages of inputs in electronics, pharma and automobile sectors or reduced external demand on slowing global growth, which would also have a bearing on India's growth outlook, she explained.

Apart from the coronavirus-related measures, the weak credit impulse domestically could constrain growth for the next two quarters, it said.

"We now expect India's real GDP growth to remain weak at 5.1 percent YoY in FY21 (previously 5.6 percent) compared with 4.8 per cent YoY (previously 4.9 percent) in FY20," it said, adding the growth rate will continue to be under potential in FY22, when it is expected to touch 6 percent.

The brokerage said it has already taken into account the benefits of the oil prices decline while making its estimate.

Courtesy the lower growth, India will continue to be constrained fiscally even in FY21, it said, expecting the government to breach the budgeted FY21 fiscal deficit target.

There will be a 0.30 percent slippage on the crucial number during the next fiscal over the 3.5 percent aspiration, it said.