FY21 GDP growth revised downwards to 3.6%: India Ratings

New Delhi, March 30 : India Ratings and Research has revised its FY21 gross domestic product (GDP) growth for India down to 3.6% from 5.5%.

The key reasons for this downgrade are the spread of COVID-19 and the resultant nation-wide lockdown imposed till 14 April 2020, crippling most economic and commercial activities.

The revision is based on the assumption of lockdown continuing till end-April 2020 (full or partial) and gradual restoration of economic activities May 2020 onwards.

In view of the lockdown, India Ratings and Research has even revised the FY20 GDP forecast downward to 4.7% (9MFY20: 5.1%) from The National Statistical Office's advance estimate of 5.0%.

The rating agency expects the GDP growth to come in at 3.6% in 4QFY20 and 2.3% in 1QFY21.

Average growth is forecast to decelerate to 2.8% in 1HFY21 (1HFY20: 5.3%) and recover to 4.3% in 2HFY21 (2HFY20: 4.2%), due to a) the base effect and b) a gradual recovery and restoration of supply chain, it said.

Some of the initial and visible impact of the spread of COVID-19 on the Indian economy has been the disruption in the production of select manufacturing sectors due to the breakdown of supply chain, near collapse of the tourism, hospitality and aviation sectors and a rise in the work load of the healthcare sector.

Also micro, small and medium enterprises, irrespective of the sector they operate in, have begun to witness cash flow disruptions.

This is not to say that other sectors were not impacted or are not likely to be impacted. However, some the services sectors such as financial services, IT and IT enabled services have greater flexibility in their operations and they quickly readjusted and/or are readjusting their operations by allowing employees to work from home.

Yet, the panic has gripped the Indian capital markets like elsewhere in the world.

A changed outlook of investors has led to a huge outflow of capital and the rupee has come under intense pressure, India Ratings said.

Also, significant wealth erosion would impact the consumption levels.

With the rabi crop maturing, disruption in harvesting and inability of agricultural markets to timely procure them could be a blow to the farmers' income and rural demand.

A stop on the construction activities will accelerate the problems of the real estate sector which is still struggling to access funding in the middle of a meltdown in the NBFC and banking sectors.

After agriculture, construction is the largest employment generator in the Indian economy.

Closure of non-essential commercial establishment and multiplexes will have a ripple effect on many sectors.

Demand for consumer durables, entertainment, sports, wholesale trade, transport, tourism, hospitality etc.

will decline, it said in its report.

Its is now expected, the agency said that several manufacturing activities will de-risk their operations by locating themselves outside China.

Also, the disruption in supply chain especially in sectors such as automobiles, pharmaceuticals, electronics and chemical products could be an incentive for the Indian manufacturing sector to become part of the supply chain.

India Ratings and Research believes this will require significant government and policy support and will play out only in the medium- to long-term.

One of the near-term advantages of the spread of COVID-19 for the Indian economy would be lower global commodity prices especially crude oil.

However, to what extent this could benefit the Indian economy would depend on the pace of restoration of normalcy and the ability and nimbleness of the Indian businesses to take advantage of this opportunity.

However, converting this advantage to an opportunity would not easy, because the Indian economy is reeling under low consumption and low investment growth, coupled with rupture in the financial system, the report said.

India Ratings and Research expects the government to announce more measures in the coming days/weeks to mitigate the pains and concerns of the other segments/sectors of the society/economy, since the role of the government is crucial in terms of containing the spread of COVID-19 and simultaneously mitigating the adverse impact of the lockdown on the economy.



Source: IANS