GDP to contract 9% in FY21, says Crisil

Our Bureau. Mumbai | Updated on September 10, 2020

Real GDP growth will dive deeper to -9 per cent in fiscal 2021 against -5 per cent projected earlier, warned credit rating agency Crisil.

With the pandemic’s peak not yet in sight and the government not providing adequate direct fiscal support, Crisil said the downside risks to its earlier forecast have materialised.

If the pandemic were to peak out in September-October, GDP growth could move into mildly positive territory towards the end of this fiscal, according to a report put together by agency’s team of economists led by Dharmakirti Joshi, Chief Economist

Even in that event, manufacturing is expected to revive faster compared with services, the report added.

“But the risks to our outlook remain tilted to the downside till such time a vaccine is found and mass produced,” cautioned the economists.

Permanent scars

Crisil expects a permanent loss of 13 per cent of real GDP over the medium term. In nominal terms, this amounts to ₹30-lakh crore, it added.

The agency underscored that this loss of real GDP growth is much higher than a 3 per cent permanent hit to GDP in Asia-Pacific economies (ex-China and India) over the medium run estimated by S&P Global in June.

Crisil assessed that catch-up with the pre-pandemic trend value of real GDP would require average real GDP growth to surge to 13 per cent annually for the next three fiscals – a feat never before accomplished by India.

The agency observed that the 61-day complete nationwide lockdown, followed by an ‘unlock’ phase with off-again, on-again regional lockdowns and curbs and a convulsing global economy, sent India’s real GDP on its worst-ever recorded contraction of 23.9 per cent for the quarter.

“Worse still, India fell hardest among peers...we expect GDP to contract 12 per cent on-year in the second quarter of fiscal 2021,” it added.

Stretched fiscal position

The agency opined that a stretched fiscal position has constrained the government from spending more to support the economy.

“While the government did announce a series of measures in the wake of pandemic that provided some support to the rural economy, the overall direct fiscal stimulus was low at about 1.2 per cent of GDP .

“Till date, the policy push to growth remains muted, except in pockets, the report said.

Published on September 10, 2020

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