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(Photo: Mint)
(Photo: Mint)

Crisil sees India GDP shrink by 5% in FY21

The rating agency said that the economy is likely to contract 25% during the first quarter of the fiscal year

NEW DELHI : Rating agency Crisil Ltd on Tuesday said the Indian economy may contract by 5% this fiscal, slashing its growth outlook for the year from 1.8% in April, holding that India’s economic package is unlikely to boost the economy in the short run and the partial lockdown continues to be a hindrance to normal economic activity.

Crisil said the recession in the current year could be India’s fourth since Independence and perhaps its worst. “In the past 69 years, India has seen a recession only thrice – as per available data – in fiscals 1958, 1966 and 1980. The reason was the same each time – a monsoon shock that hit agriculture, then a sizeable part of the economy," it said.

The government has extended the lockdown three times till 31 May to deal with the rising number of coronavirus cases, curtailing economic activity severely.

“We believe successive lockdowns have a non-linear and multiplicative effect on the economy—a two-month lockdown will be more than twice as debilitating as a one-month imposition, as buffers keep eroding. Partial relaxations continue to be a hindrance to supply chains, transportation and logistics. Hence, unless the entire supply chain is unlocked, the impact of improved economic activity will be subdued," it added.

Crisil said during the first quarter the economy is likely to contract 25%. “The first quarter will be the worst affected. June is unlikely to see major relaxations... Not only will the first quarter be a washout for the non-agricultural economy, services such as education, and travel and tourism among others, could continue to see a big hit in the quarters to come. Jobs and incomes will see extended losses as these sectors are large employers," Crisil said.

Goldman Sachs this month said India’s economy may contract by a huge 45% in the June quarter and also projected a 5% contraction in GDP for FY21.

The rating agency has assumed a normal monsoon, soft crude prices and that containment measures taken by the government are likely to be relaxed after 31 May, even though the lockdown may continue. However, it cautioned that there are further downside risks to its growth projection in case of a second wave of covid-19 cases, a sub-optimal monsoon or a further markdown in global growth.

“We believe a catch-up to the pre-crisis trend level of GDP will not be possible in the next three fiscals ... Under the base case, we estimate a 10% permanent loss to real GDP (from the decadal-trend level), assuming average growth of 7% between fiscals 2022 and 2024," it added.

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