CARE Ratings cuts India’s FY22 GDP forecast to 10.2%

Our Bureau Mumbai | Updated on April 21, 2021

The second downward revision within a month comes in the wake of surge in Covid cases and subsequent curfews and lockdowns in States

CARE Ratings has cut GDP growth forecast for FY22 from 10.7-10.9 per cent to 10.2 per cent in the backdrop of the second wave of Covid-19 pandemic, with various States imposing restrictions ranging from night curfews to weekend lockdowns to full lockdowns.

This is the second time within a month that the credit rating agency has revised GDP growth forecast downwards. On April 5, it lowered the forecast from 11.0-11.2 per cent to 10.7-10.9 per cent.

The agency estimated the potential loss of Gross Value Added (GVA or output) at ₹1.13 lakh crore.

Madan Sabnavis, Chief Economist, in a note, said: “The spread of the virus in Maharashtra had led to the announcement of a lockdown by the State government which began in a less stringent manner from the first week of April.

“Consequently, on factoring the potential loss of economic output due to the restrictions in Maharashtra, on April 5 we lowered our GDP forecast for FY22 to 10.7-10.9 per cent (from 11-11.2 per cent).”

But the lockdown has been made more obtrusive to business activity by April 20, with more stringency expected in the forthcoming fortnight, he added.

Further, the spread of the virus to other States has caused similar actions by governments, ranging from night curfews and weekend lockdowns to full lockdowns.

The main assumptions made by CARE to arrive at the revised GDP include Centre not announcing a lockdown at the national level; infection incidence rising in May from new regions; other states, besides the current ones, also announcing lockdowns; and business activity getting constricted with these measures.

The note said the distinction between essential and non-essential goods will further push back the latter; consumption as a whole will fall and all of this decline will not be compensated for during the course of the year unlike last year. Also, the loss of output in the various segments of the services sector cannot be recouped.

The agency said the lockdown impact has been worked out for a ‘two-month effect’ meaning, thereby, these lockdowns will be eased from June onwards. This may not really be so in which case the impact would be sharper.

Challenges in providing relief

Sabnavis emphasised that the major challenges will be providing relief to the business units which also includes employees who may have to go back to their hometowns.

As per his assessment: “The SMEs (small and medium enterprises) specialise more in non-essentials and will be pushed back further. Maharashtra has announced a relief package of around ₹5,500 crore…the lockdown is to end on May 1 which may not materialise.

“State budgets are stressed already and have limited space to support enterprises. Localised lockdowns are also likely to pressure the revenue collections of the States.”

The Centre may have exhausted all the policy measures under Atmanirbhar Bharat and hence cannot be expected to come up with any big-bang schemes this year too, he added.

“Two events in the country, State elections and the Kumbh mela, have involved millions of people coming together with social distancing norms not being followed. This has potential to spread the virus at an exponential rate through the country and several States have announced measures to test people returning from the pilgrimage,” cautioned Sabnavis.

The post-election lockdowns in the five States can be expected once polling is completed and more people are tested for Covid-19, he added.

Published on April 21, 2021

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