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Two domestic research agencies, CRISIL and ICRA, on Thursday sharply lowered their GDP (Gross Domestic Product) growth forecast for FY21.
While CRISIL has lowered growth projection by 170 basis points (100 basis points mean one percentage point), ICRA’s cut is in the range of 50-100 bps. These revisions have been done at a time when India is passing through 21-day nationwide lockdown in an effort to contain the spread of Covid-19.
CRISIL said that the pandemic and the consequent lockdown pose a material risk to its India economic outlook. The adverse effects that will follow can dwarf the gains from the sharp drop in crude oil prices, and the anticipated monetary and fiscal stimuli. Latest high-frequency data on the impact of the coronavirus, such as industrial production, PMI and exports is not yet available. So, it cautioned on the Ides of March.
“We have slashed our base-case GDP growth forecast for FY21 to 3.5 per cent from 5.2 per cent expected earlier,” said Dharmakirti Joshi, Chief Economist at CRISIL.
He added ttha the forecast is based on the assumption that there is a normal monsoon, and the effect of the pandemic subsiding materially, if not wearing out, in the April-June quarter. He expects that the slump in growth will be concentrated in the first half of next fiscal, while the second half should see a mild recovery.
Ashu Suyash, MD and CEO of CRISIL, said that the non-linearity and complexity of what’s unfolding creates uncertainties not only for businesses but for all mankind, and weighs heavily on sentiment and outlook, with risks tilted to the downside. Inability to control the pandemic and extension of the lockdown will aggravate supply and demand shocks.
ICRA’s take
Taking cue from the government’s announcement of relief measures on Thursday, ICRA’s Principal Economist, Aditi Nayar, felt that package to provide relief during these unprecedented times are welcome, especially the provision of additional food, which will ensure food security, free LPG, and the upfronting of various payments, such as the PM Kisan and pension entitlements. However, the fresh announcements related to cash transfers appear to be relatively modest at this stage.
“Accordingly, we now expect the impact of social distancing and the lockdowns to limit GDP growth to 2.4 per cent in Q4 (January-March) FY20 and a marginal 0.5 per cent in Q1 (April-June) FY21, despite the support from agriculture and government spending. As a result, we expect the annual GDP growth to ease from 4.4 per cent in FY20 to 4.2 per cent in FY21,” she said.
Earlier this week, ICRA revised GDP growth projection for FY20 to 4.7 per cent. Depending on the duration of the near-lockdowns that have been imposed in several districts, GDP growth appears likely to range from 4.7-5.2 per cent in FY21. However, if the unprecedented situation continues into Q2 FY21, there could be considerable downside risks to forecasts.
On Thursday, Nayar said he hoped that once the lockdown is lifted, different sectors willreturn to near-normalcy with a varied timeline. Even though volume growth may bounce back rapidly in some sectors to replenish the depleted inventories, supply chains may take some time to normalise.
Moreover, profitability is likely to be squeezed, which would weigh upon GDP and GVA growth.
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