GDP likely to grow at 1.9% if lockdown is lifted in mid-May: India Ratings

Meanwhile, CRISIL has cut estimates of India's FY21 economic growth rate to 1.8% from earlier 3.5%

The Indian economy may either contract 2.1 per cent or grow 1.9 per cent in the current fiscal year (2020-21), depending on when the lockdown is lifted and how soon the economic activity picks up, India Ratings and Research (Ind-Ra) said on Monday.
 

If the partial lockdown continues till mid-May, the rating agency believes that the economic growth may come down to 1.9 per cent — the lowest in the last 29 years after 1991-92 when the economy grew 1.1 per cent because of the balance of payments crisis. In that situation, Ind-Ra estimate suggests that gross domestic product (GDP) may come back to the March quarter level only by the December quarter. It anticipated resumption of normal economic activity during the September quarter of this fiscal year.
 

Late last month, Ind-Ra had pegged GDP growth rate at 3.6 per cent. However, if the lockdown continues beyond mid-May and a gradual recovery takes root only from June-end, GDP may contract by 2.1 per cent — the lowest in the last 41 years and only the sixth instance of contraction since 1951-52. GDP shrunk by 0.4 per cent in 1957-58, 2.6 per cent in 1965-66, 0.1 per cent in 1966-67, 0.6 per cent in 1972-73 and 5.2 per cent in 1979-80.

The proactive intervention of the Reserve Bank of India (RBI) notwithstanding, the spillover impact of the Covid-19 pandemic has percolated into the financial markets as well, choking the credit channels and raising the risk aversion, the agency said.
 

There is no shortage of liquidity in the system. The RBI injected liquidity worth about 3.2 per cent of GDP since February 2020, and the systemic liquidity surplus, as reflected in net absorptions under the liquidity adjustment facility, averaging Rs 4.36 trillion during March 27-April 14, it said.
 

Yet, the spread between the repo rate and capital market instruments, which were either flat or declining since the beginning of March 2020, started inching up after March 13.

 

GDP growth rate cuts by various agencies for India
India Ratings (for 2020-21)	(-) 2.1 to 1%
CII (for 2020-21)	(-) 0.9% to 1%
Nomura (for 2020)	-0.50%
Fitch Ratings (for 2020-21)	0.8%
Moody's Investors Service (for 2020)	2.50%
Goldman Sachs (for 2020-21)	1.60%
World Bank (for 2020-21)	1.5-2.8%
IMF (for 2020-21)	1.9%
Asian Development Bank (for 2020-21)	4%
Source: Respective agencies