On Thursday, S&P Global Ratings cut India's growth forecast for the current fiscal from 11 per cent to 9.5 per cent, and warned of risk to the outlook from further waves of Covid pandemic.

S&P lowered the growth outlook saying that a severe second wave of Covid-19 in April and May led to lockdowns imposed by states and sharp contraction in economic activity.

“We forecast growth of 9.5 per cent this fiscal year from our March forecast of 11 per cent,” said S&P.

Stating that permanent damage to private and public sector balance sheets will constrain growth over the next couple of years, the agency projected India's growth at 7.8 per cent in the next fiscal ending March 31, 2023.

“Further pandemic waves are a risk to the outlook given that only about 15 per cent of the population has received at least one vaccine dose so far, although vaccine supplies are expected to ramp up,” said S&P.

Indian economy contracted by 7.3 per cent in fiscal 2020-21 as the country battled the first wave of Covid-19, as against a 4 per cent growth in 2019-20.

GDP growth in the current fiscal was estimated to be in double digits initially, but a severe second wave of the outbreak of Covid-19 has led to various agencies cut growth projections.

Earlier this month, RBI too cut India's growth from a 10.5 per cent forecast, estimated earlier, to 9.5 per cent for this fiscal.

RBI said that manufacturing and exports were less severely affected compared with 2020, but services were acutely disrupted. Consumption indicators such as vehicle sales fell sharply in May 2021 and consumer confidence remains downbeat.

“The economy has turned a corner now. New Covid-19 cases have been falling consistently and mobility is recovering. We expect this recovery to be less steep compared with the bounce in late 2020 and early 2021,” said RBI.

According to S&P, households are running down saving buffers to support consumption and a desire to rebuild saving could hold back spending even as the economy reopens.

“Monetary and fiscal policies will remain accommodative but new stimulus will not be forthcoming,” said S&P.

S&P stated RBI has no room to cut interest rates with inflation above 6 per cent the upper end of the central bank target range.

Fiscal policy is constrained by limited policy space, particularly because the budget for fiscal 2022 (ending March 31, 2022), which was decided before the second Covid-19 wave, had already targeted a large general government deficit of 9.5 per cent of GDP.

S&P joins a host of global and domestic agencies which have cut India's growth estimates for current fiscal.

Another US-based rating agency, Moody’s has projected India to clock a 9.3 per cent growth in the current fiscal ending March 2022. For 2021, Moody's has cut growth estimate sharply to 9.6 per cent.

Earlier this month, World Bank had cut down its GDP growth forecast for current fiscal ending March 2022 to 8.3 per cent, from 10.1 per cent estimated in April, stating that economic recovery is being hampered by the devastating second wave of coronavirus infections.

Domestic rating agency ICRA too had projected economic growth at 8.5 per cent for this financial year, while British brokerage firm Barclays, last month cut India's growth forecast to 9.2 per cent.