Covid-19 impact: Indian economy likely to grow 2% in FY21, says Icra

The rating agency said nationwide lockdown announced to contain the coronavirus outbreak has impacted industries

Icra Ratings on Tuesday sharply cut the country's GDP forecast amid the Covid-19 crisis and expects the economy to grow at just 2 per cent in the current fiscal.

It said the nationwide lockdown announced to contain the coronavirus outbreak has impacted industries and their operations have come to a standstill.

"The Indian economy is likely to witness a sharp contraction of 4.5 per cent (de-growth) during Q4 FY20 and is expected to recover gradually, to post a GDP growth of just 2 per cent in FY21," the rating agency said.

It said the concerns on account of Covid-19 have morphed from the impact of imports from China on domestic supply chains, into a domestic and external demand shock, with social distancing and lockdowns leading to production shutdowns and job losses in some sectors.

The rating agency's vice president and sector head (corporate ratings) Shamsher Dewan said, "Amid uncertainty as to when the situation will normalize, we expect a sharp downturn in various indicators of the manufacturing and services sectors from March 2020 onwards."

This primarily includes the discretionary activities like travel, tourism and hospitality; labour intensive sectors like construction, transport and manufacturing of non-essential items; exports; and supporting sectors like electricity, he said.

Domestically, the impact of the coronavirus pandemic could lead to slowdown in domestic demand, erosion of purchasing power due to job losses or pay cuts and trickle-down effect of demand deferral will have a longer-lasting impact on some other sectors, especially where demand is discretionary in nature, it said.

Global economic slowdown and lockouts is likelyto impact sectors with high dependence on global demand especially that of key impacted markets like Europe, North America and South-East Asia, the rating agency said.

It said lower global demand and price realisation will have an impact on commodities like oil and gas, metals.

"Foreign exchange rate fluctuationswillhave bearing on import-heavy sectors with forex-denominated cost structure, it said.

The high impact sectors in terms of risk on account of Covid-19 are aviation, hotels, restaurants, jewellery, retail, shipping, ports and port services.

The medium impact sectors are automobiles, building materials, residential real estates while the low impact sectors includes education, dairy products, fertilisers, FMCG and healthcare among others.

According to the rating agency, in the current scenario, extended demand disruptions are likely to lead to elongated payment cycles.

"Since an entity's liquidity position is of paramount importance to support its credit profile, it is expected that several entities would endeavour to conserve cash, either by invoking force majeure clauses to revoke payments; or by deferring payments to the extent possible, it said.

Consequently, many entities are expected to face working capital blockage as their receivables get stretched and inventory doesn't run-down simultaneously.

The rating agency's head (credit policy), Jitin Makkar, said regardless of the RBI's three-month moratorium, entities with weak liquidity buffers are likely to report significant weakening of their credit profile over the next couple of quarters.

India's fiscal deficit may shoot to 6.2% of GDP in FY21: Fitch Solutions

India's fiscal deficit in 2020-21 may shoot up to 6.2 per cent of the GDP from 3.5 per cent government estimate as a fallout of the Covid-19 economic stimulus package, Fitch Solutions said on Wednesday.

With businesses disrupted due to the lockdown and its ripple effects, revenue will come under "heavy pressure" and may force the government to look towards additional borrowing and/or a higher central bank dividend to fund its expenditure, it said.

"At Fitch Solutions, we are revising our forecast for India's FY2020/21 (AprilMarch) central government fiscal deficit to widen to 6.2 per cent of GDP, from 3.8 per cent of GDP previously (estimated by Fitch Solutions), which reflects our view that the government will miss its initial target of 3.5 per cent by a wider margin," the agency said.

Moody's cuts India 2020 GDP forecast to 2.5%; global growth to dip to -0.5%

Moody’s Investor Service (Moody’s) has slashed its economic growth forecast for India to 2.5 per cent for calendar year 2020 (CY20) even as it expects the growth to bounce back to 5.8 per cent in 2021 (CY21). At the global level, it expects a GDP growth of negative 0.5 per cent in CY20, before bouncing back in CY21.

The downward revision in growth rates for CY20 comes in the backdrop of coronavirus (Covid-19) pandemic that has paralysed economic activity not only in India, but across the globe. Moody's expects the growth in G-20 economies to experience an unprecedented shock in the first half of 2020 and contract as a whole, before picking up in 2021.