Calling for urgent liquidity support to the worst-hit services sector, Crisil has opined that only a mix of monetary and fiscal boosters can help the economy tide over the deepening impact of the Covid-19 pandemic.

Immediate short to mid-term liquidity support to airlines, hotels, malls, multiplexes, restaurants and retailers is needed as they are in the high-risk category with the steepest revenue loss, says a report by Crisil economists and analysts.

Their call is despite an admission that the government has little policy firepower to give a meaningful push to growth and the pandemic is making it more difficult and therefore a mix of monetary and fiscal policy measures necessary to cushion demand fall.

In the best-case scenario, supply-chain normalisation is possible only by end May provided the rate of new Covid-19 cases continues to fall in China, they say while warning that if that does not happen, then other sectors like steel, gems & jewellery, construction & engineering, and textiles would be hit.

Near-term liquidity is critical to ensure timely servicing of debt as businesses adjust to the fast-changing environment, which will also ensure that there is another avalanche of bad loans for banks, says the report without offering a number of the NPA worry.

Coronavirus impact on economy

Warning that external shocks are weighing more on the country now, the report notes that the near recession-like situation in top 15 economies, which are also the worst Covid-19 affected nations — will see that our exports are roiled badly.

These 15 countries contribute 64 per cent of global GDP and more than 60 per cent of global trade and nearly 45 per cent of our exports, and these countries are also India’s largest trading partners — with the US, China and Germany alone contributing 30 per cent of our exports at 17 per cent, 10 per cent and 3 per cent respectively; and 29 per cent of our imports at 7 per cent, 19 per cent and 3 per cent respectively.

In fiscal 2019, the imports from China amounted to USD 70 billion and exports, USD 17 billion. If the pandemic is not contained soon, China’s demand for cotton, iron ore, and petroleum products from India is likely to suffer. Imports of pharma automobiles, consumer durables, electronics and telecom/smartphone equipment could also bear the brunt, hurting these sectors domestically.

Stated differently, the Eurozone, China, and the rest of Asia-Pacific—which are facing at least 200 bps hit to their growth forecast as of now— account for around 48 per cent of India’s exports and around 50 per cent of imports.

Warning of more asset quality strains for banks, the report says credit quality pressures, which have been rising because of the slowdown and consumption slump is set to intensify with the pandemic. The impact will vary with sectors, and will be influenced by the extent of trade disruption, social distancing and the resultant economic slowdown, the report says.

Given these factors, the agency has lowered the FY2021 growth forecast by 50 bps to 5.2 per cent. We expect the economy to grow at 5.2 per cent in fiscal 2021, lower by 50 bps from the last projection and the new forecast come with risks tilted to the downside, and assumes a normal monsoon and Brent crude averages at USD35-40 through the year.

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