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.