Pandemic effect: India’s GDP will contract 5% in FY21\, says Crisil

Economy

Pandemic effect: India’s GDP will contract 5% in FY21, says Crisil

Our Burea Mumbai | Updated on May 26, 2020 Published on May 26, 2020

Q1 likely to see 25% contraction due to lockdown, says rating agency; agri to soften blow

Crisil has forecast India’s GDP growth to fall off a cliff and contract 5 per cent in FY21, due to the impact of the pandemic.

The credit rating agency warned that the first quarter will suffer a staggering 25 per cent contraction.

“An extended period of lockdown (two full months of the first quarter, nationwide), a higher-than-expected economic cost and a smaller-than-expected policy push to demand revival in the short term weigh on the growth outlook. This is additional to the blow on the external front. Agriculture is expected to grow near its trend rate,” Crisil said in a report titled Minus Five.

Given that the Centre’s stimulus is not substantial and direct, it is unlikely to result in a material positive delta to growth this fiscal, the report added.

Despite the stringency of the lockdown easing a tad in the third and fourth phases, the agency reasoned, their negative impact on GDP is expected to massively outweigh the benefits from mild fiscal support and low crude oil prices, especially in the April-June quarter.

Permanent loss

Crisil said about 10 per cent of the GDP in real terms could be permanently lost. So, going back to the growth rates seen before the pandemic is unlikely in the next three fiscals.

It added that to catch up would require average GDP growth to surge to 11 per cent over the next three fiscals — which is unprecedented.

“India’s fourth recession since Independence, first since liberalisation, and perhaps the worst to date is here. Earlier, on April 28, we had slashed our prediction to 1.8 per cent growth from 3.5 per cent growth. Things have only gone downhill since,” said the report.

While the agency expects non-agricultural GDP to contract 6 per cent, agriculture could cushion the blow by growing at 2.5 per cent.

Previous plunges

According to available data, over the past 69 years, India has seen a recession only thrice — 1957-58, 1965-66 and 1979-80. The reason was the same each time — a monsoon shock that hit agriculture, and then a sizeable part of the economy.

“The recession staring at us today is different. For one, agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon. Two, the pandemic-induced lockdowns have affected most non-agriculture sectors. And three, the global disruption has upended whatever opportunities India had on the exports front,” the report said.

Published on May 26, 2020

A letter from the Editor

Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Sincerely,

Support Quality Journalism
Maharashtra farmers to revive pro-GM crop movement