Buoyant India growth outlook trimmed, more downgrades seen likely

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BENGALURU, April 30 (Reuters) - The record-setting COVID-19 wave in India has not had much impact so far on economic growth forecasts, with economists polled by Reuters cutting their buoyant outlook only slightly over the past few weeks, though most said further downgrades could be coming.

Another wave of infections in the world's second-most populous country has led to a health crisis, with the total reported cases at more than 18 million and more than 200,000 deaths. read more

While that has pushed many state governments to reimpose curbs, dealing a further blow to economic activity still reeling from the effects of the first wave, Indian shares ended at their highest level since mid-March on Thursday. read more

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After a predicted 7.5% contraction on average in the fiscal year that just ended in March, an April 26-29 poll of nearly 50 economists showed output expected to bounce back and grow 10.4% this year. That consensus was just a small downgrade from 11.0% growth predicted four weeks ago.

However, most economists suggested they expected forecasts to be lowered further if the health picture does not improve.

"My baseline scenario for the current fiscal year is 7.8%. Now that's close to the lower end of market expectations, which ranges up to double-digit growth," said Prakash Sakpal, senior Asia economist at ING.

"The government, the Reserve Bank of India are very optimistic about reaching double-digit growth, even the International Monetary Fund is of that opinion. But I'm sure all these forecasts are going to come down very soon."

All but two of 37 economists who responded to an additional question said the outlook for Asia's third-largest economy was either "weak and prone to further downgrades" or "fragile, with a limited downside".

A man wearing a handkerchief as a mask moves past parked autorickshaw during a curfew to limit the spreading of coronavirus disease (COVID-19), in Mumbai, India, March 24, 2020. REUTERS/Prashant Waydande/File Photo

"We have revised our GDP growth forecast down to 10% in a base case scenario for India. However, in a worst-case scenario we expect GDP growth at 8%," said Sakshi Gupta, senior India economist at HDFC Bank.

"Given the ferocity of the second wave, the scales are increasingly tipping towards a worst-case scenario, wherein the impact of the second wave lingers on in the second half of the year."

Asked how long it would take for the economy to reach pre-crisis levels, 19 of 34, or more than 55%, said at least a year, including six who said two or more years. The remaining 15 economists expected a revival within a year.

Despite a more subdued outlook, no economist forecast an outright contraction in economic activity in any quarter this fiscal year. Nearly 80% of economists, or 27 of 34, in response to another question said a contraction this year following a deep recession in 2020 was unlikely.

"As things stand, with containment measures less strict than a year ago, activity still appears to be holding up. The big unknown is whether these restrictions will be sufficient to curb the outbreak," said Darren Aw, Asia economist at Capital Economics.

Asked if some sort of fiscal support was needed to power the economy through the current crisis, nearly 60% of economists, or 19 of 32, said yes.

"We need the government to help people similar to what other countries did - cash handouts, subsidies or tax breaks. Nobody cares how much soft loan you offer to businesses, because when there is no confidence, nobody is going to take their loans," said ING's Sakpal.

"Even if the RBI cuts rates and provides plenty of liquidity, there aren't going to be any takers. So what is required here is a real push in terms of fiscal policy - which comes to boosting the health care system and whatever can be done, it has to be immediate."

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Reporting by Hari Kishan and Indradip Ghosh; Polling by Shaloo Shrivastava, Md Manzer Hussain and Vivek Mishra; Editing by Rahul Karunakar and Peter Graff

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