On Monday, CRISIL, India’s domestic rating agency, announced its new forecast for India’s Gross Domestic Product (GDP) growth in the fiscal year of 2020-21. The agency is projecting a total loss of ₹10 Lakh Crore or ₹7000 per Indian, alongside the new estimation of 1.8% in GDP growth for India.The agency had an initial GDP growth estimate of 6% for FY2021, which was revised to 3.5% in late March.
Now, CRISIL claims that this new estimate is nearly half the previous one due to the “disastrous” Government response during lockdown. For context, India is currently going through a 40-day nationwide lockdown which was imposed to curb the outbreak of COVID-19. They further advised the Government to ramp up its support to Indian economy in order to prevent a further GDP decline.
Another rating agency, India Ratings and Research (Ind-Ra) has also revised their FY2021 economic growth forecast for India further down to 1.9%. The agency is saying that the growth, this fiscal, could be the lowest in the last 29 years.
Economists, across the country, were quick to raise their concerns against this lockdown as it entailed a severe ban in all but a few economic activities. With this lockdown in effect, they expect a contraction in out economy for FY21.
Industry analysts have been criticizing the government response for being reactionary at best. So far, the government has unveiled a ₹1.70 Lakh Crore stimulus package for Indian economy. This has also been criticized for not entirely being new money. For its part, the Reserve Bank of India (RBI) is come up with a bevy of measures to boost the market sectors, in need.
“Lockdowns are showing a disastrous impact on the economy and could lead to a permanent loss of GDP, unemployment and poverty, despite relief packages,” CRISIL warned on Monday while revising down its growth estimates.
With the threat of further outbreaks, still looming, the agency acknowledged that policymakers are grappling with a “dilemma” right now on whether to extend the lockdown beyond May 3 or extend it further with a burden of further economic slump.
The agency expounded upon this dilemma, by ascertaining that non-compliance of social distancing norms could lead to further outbreaks at a community-wide scale. It added that if the norms are followed strictly, there will be setbacks on economic activities which will infuse uncertainties on spending.
Analyst agencies have shared their presuppositions behind these new economic growth estimates. A normal monsoon, sharp fall in oil prices lending a helping hand and the effect of pandemic subsiding in the first quarter of the fiscal year has been a few of them. However, risk factors like a dip in global growth, restrictions continuing in India and the second wave of cases emerging up, were also taken under consideration.
In its report, the agency further estimated that inflation will cool down to 4.4% by the end of FY21, the current account deficit for FY2021 will narrow to 0.2% from the 1% in FY2020 and Indian Rupee will appreciate to ₹73 to a Dollar.
The agency stated the Indian government is taking “measured steps and trying not to front-load its response”, but needs to drastically step up its fiscal response. “The quantum of fiscal support announced so far is low, and the coverage is quite poor,” it added.
The shock to the economy will be both on the demand and supply side, it said, terming it as a “rare event”.
Supply will be impacted due to factors like factory shutdowns, logistical bottlenecks in movement of goods, labour shortages and cash flow drying up, while the demand side challenges include cuts in consumer spending, debt to global demand, loss of incomes or unemployment and weaker sentiments, the agency explained.
Elaborating on the labour market, it said that casual labourers account for a fourth of the overall labour workforce in India. They will be the first ones to be hit through lay-offs in sectors like construction, mining, manufacturing and transport, it warned.
38% of people, in the category classified as “salaried”, do not have a valid job contract, the agency concluded, warning that there can also be a permanent loss of job in some cases if the lockdown continues.
CRISIL joins the ranks of several global brokerages and finance companies who have estimated India’s GDP growth, in the past month. Barclays had put out a growth estimation of 7.5% for India in FY21.