GDP to contract by 5% in FY21: Crisil
Q1 GDP to shrink 25%; pre-crisis growth may not return in the next three fiscals
- Rating agency Crisil expects India’s economy to shrink by 5% during the current financial year as the nationwide lockdown crippled economic activity.
- This is despite agriculture acting as a cushion.
- The non-farm growth rate is seen to contract by 6% with agricultural activity providing a cushion with an estimated growth of 2.5%.
- “A month is a long time in today’s pandemic-stricken world… Earlier, on April 28, we had slashed our prediction to 1.8% growth from 3.5%. Things have only gone downhill since,” the rating agency said in a report.
- The first quarter (Apr-June) is expected to suffer a staggering 25% contraction.
- “ About 10% of gross domestic product (GDP) in real terms could be permanently lost,” Crisil said. “We believe a catch-up to the post-crisis trend level of GDP will not be possible in the next three fiscals despite policy support.” “To catch-up would require average GDP growth to surge to 11% over the next three fiscals, something that has never happened before.”
- The report said in the past 69 years, the country had seen recession only thrice, in 1958, 1966 and 1980 and the reason was the same each time — a monsoon shock that hit agriculture, then a sizeable part of the economy.
- However, this year’s recession would be because of non-farm sectors as the pandemic-induced lockdowns have affected most non-agriculture sectors. In addition, the global disruption has upended whatever opportunities India had on the export front.
- For the forecast, Crisil has assumed the containment measures taken by the government will be relaxed even if the lockdown continues.
- It has also assumed a normal monsoon and benign crude oil prices. The risk to the forecasts are, a second wave of the pandemic, a further markdown in global growth and setback to farm sector growth due to monsoon failure or supply disruptions.
- “Counting lockdown 4.0, Indians have had 68 days of confinement. S&P Global estimates that one month of lockdown shaves 3% off of annual GDP on an average across Asia-Pacific. Since India’s lockdown has been the most stringent in Asia, the impact on economic growth will be correspondingly larger,” the report said.
- Crisil said the government’s economic package of ₹20 lakh crore is ‘enough muscle.’ The package has some short-term measures to cushion the economy, but sets its sights majorly on reforms, most of which will have payoffs only over the medium term.