Pandemic effect: India’s GDP will contract 5% in FY21, says Crisil

Our Bureau Mumbai | Updated on May 26, 2020

Q1 likely to see 25% contraction due to lockdown, says rating agency; agri to soften blow

Crisil has forecast India’s GDP growth to fall off a cliff and contract 5 per cent in FY21, due to the impact of the pandemic.

The credit rating agency warned that the first quarter will suffer a staggering 25 per cent contraction.

“An extended period of lockdown (two full months of the first quarter, nationwide), a higher-than-expected economic cost and a smaller-than-expected policy push to demand revival in the short term weigh on the growth outlook. This is additional to the blow on the external front. Agriculture is expected to grow near its trend rate,” Crisil said in a report titled Minus Five.

Given that the Centre’s stimulus is not substantial and direct, it is unlikely to result in a material positive delta to growth this fiscal, the report added.

Despite the stringency of the lockdown easing a tad in the third and fourth phases, the agency reasoned, their negative impact on GDP is expected to massively outweigh the benefits from mild fiscal support and low crude oil prices, especially in the April-June quarter.

Permanent loss

Crisil said about 10 per cent of the GDP in real terms could be permanently lost. So, going back to the growth rates seen before the pandemic is unlikely in the next three fiscals.

It added that to catch up would require average GDP growth to surge to 11 per cent over the next three fiscals — which is unprecedented.

“India’s fourth recession since Independence, first since liberalisation, and perhaps the worst to date is here. Earlier, on April 28, we had slashed our prediction to 1.8 per cent growth from 3.5 per cent growth. Things have only gone downhill since,” said the report.

While the agency expects non-agricultural GDP to contract 6 per cent, agriculture could cushion the blow by growing at 2.5 per cent.

Previous plunges

According to available data, over the past 69 years, India has seen a recession only thrice — 1957-58, 1965-66 and 1979-80. The reason was the same each time — a monsoon shock that hit agriculture, and then a sizeable part of the economy.

“The recession staring at us today is different. For one, agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon. Two, the pandemic-induced lockdowns have affected most non-agriculture sectors. And three, the global disruption has upended whatever opportunities India had on the exports front,” the report said.

Published on May 26, 2020

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