Fitch Solutions on Monday cut its forecast for India's economic growth to 4.9 percent in the current 2019-2020 fiscal that ends March 31, saying manufacturing could come under pressure from weak domestic demand and supply chain disruptions due to the coronavirus outbreak.
However, the GDP growth is on track to recover slightly to 5.4 percent in 2020-2, the ratings agency said. "Our forecast assumes that the Covid-19 outbreak will be contained by the first half of next fiscal year, although we stress that there remain significant downside risks to this forecast as there is still limited visibility on the virus spread in developing markets," Fitch Solutions said.
"We are revising down our forecast for India's real GDP growth to 4.9 percent in FY2019/20, from 5.1 percent previously, and 5.4 percent in FY2020/21, from 5.9 percent previously," the agency said in its outlook for the country.
Recently, Moody's Investors Service also cut India's GDP growth forecast to 5.4 per cent for 2019-2020 from 6.6 percent projected earlier on slower-than-expected recovery.
In the third quarter (October-December), India's real GDP growth decelerated to 4.7 percent from an upwardly revised 5.1 percent in the second quarter owing to slower government consumption, a steeper contraction in gross fixed capital formation and a smaller net exports contribution, Fitch pointed out.
Fitch said a failure of the new Indian budget to provide support to the industry would also bring little reprieve for a sluggish industry already coming under heavy pressure from a credit squeeze following the collapse of several key Non-Bank Financial Companies (NBFCs).
NBFCs are a key channel in which consumers obtain loans for vehicle and housing purchases.
"Our revision is due to our view of disruption in the automotive and electronics supply chain from the ongoing Covid-19 outbreak in China to weigh on India's export manufacturing sector, and for this to have negative knock-on effects on the broad services sector," Fitch Solutions added.
Fitch expects manufacturing, which accounts for 14 percent of GDP growth to remain weak over the near term. A continued contraction in total vehicle sales, suggests that the outlook for the automotive industry remains weak, Fitch Solutions said forecasting that the total vehicle demand would remain weak over the coming months, which should also see production remain in contraction.
The coronavirus outbreak in China is impacting most manufacturing sectors including electronics. And automotive. China supplies between 10-30 percent of automotive components used in India's automotive manufacturing, with the proportion supplied being two to three times higher for the electric vehicle segment.
China also accounts for 75 percent of the total value of components used in televisions and 85 percent in smartphones, supplying parts from mobile displays, printed circuit boards, memory and LED chips to air conditioner compressors and washing machine motors.
