Covid-19 expected to cap India’s GDP growth up to 9% this fiscal: McKinsey

The Covid-19 pandemic and the subsequent lockdown of economy is expected to pull down GDP growth between 3 and 9 per cent in this fiscal, depending on the effectiveness of virus containment and economic policy responses.

In the report titled India’s turning point , McKinsey & Company said that uncertainty remains high on both dimensions and therefore on the depth and duration of the health and economic costs for India.

The initial 10-week lockdown saw the economy operate at about half its capacity with significant strain on micro, small, and medium-size businesses and large corporates.

The financial strain on households, MSMEs, and corporates, if unmitigated, would increase the level of non-performing assets by seven to 14 percentage points in fiscal year 2021, said the report.

The government responded with a package of liquidity and fiscal measures to stabilise the economy in the short term and in order to support low-income households, farmers, MSMEs, and the financial system.

These reforms may have a potential fiscal deficit impact of about 1.5 per cent in fiscal year 2021. Coupled with contracting GDP and reduction in government revenue, this could lead to an incremental central fiscal deficit of about four percentage points over the budgeted 3.5 per cent of GDP, it said.

However, the report said this economic crisis could spur actions that return the economy to a high-growth track and create 90 million jobs over the next decade.

Letting go of this opportunity could risk a decade of economic stagnation. Post pandemic, annual GDP growth of 8-8.5 per cent will be required with continued strong productivity and faster employment to create the 12 million non-farm jobs annually that are needed, as compared to the four million created each year from fiscal 2013-18. Even before the pandemic, India’s economy faced structural challenges, and GDP growth fell to 4.2 per cent while the crisis compounds the challenge, said the report.

Manufacturing could contribute one-fifth of incremental GDP to 2030, while construction could add one in four of the incremental jobs required.

Labour- and knowledge- intensive services sectors also need to maintain their past strong growth momentum. Across all sectors, three growth booster themes spanning 43 frontier businesses have the potential to create $2.5 trillion of economic value and 30 per cent of non-farm jobs in 2030.

India needs to triple its number of large firms, with over 1,000 mid-size and 10,000 small companies scaling up. Currently, India has about 600 large firms with over $500 million in revenue.

Financial-sector reforms and streamlining fiscal resources can deliver $2.4 trillion in investment while boosting entrepreneurship by lowering the cost of capital for enterprises by about 3.5 percentage points.

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