Covid19 Impact: India’s GDP For 2020-21 Could Slump To 2-3%

India's GDP for 2020-21 could slump to a 30-year low, though, this could be a temporary aberration. A robust recovery in growth is highly possible in FY 2021-22.

Leading agencies cut GDP forecasts

Sovereign sovereign rating agencies have cut India's GDP forecast and estimates range from 2 to 3.5 per cent.

"While lower official interest rates and government stimulus actions provide some relief, the slump in demand is likely to lead to declining credit quality and rising defaults, particularly among non financial corporates with weaker credit profiles," a report by S&P said.

Agency	GDP Forecast 2020-21
S&P	3.5%
Moody's	2.5% (calendar year 2020)
Fitch	2%

One of the lowest possible downgrades for India's GDP has come from Fitch. Fitch has said it has slashed India's growth forecast for the current fiscal to a 30-year low of 2 percent, from 5.1 percent projected earlier, as economic recession gripped global economy following the lockdown due to the Covid-19 pandemic. "The initial disruptions to regional manufacturing supply chains from a lockdown in China as the coronavirus spread have now broadened to include local discretionary spending and exports even as parts of China return to work.

Moody's Investors Service too has slashed India's economic growth projection for 2020 from 5.3% to 2.5%, as the Covid-19 outbreak causes an unprecedented shock to the global economy.

"The governments of India (Baa2 negative) and South Africa (Baa3 negative) have announced 21-day lockdowns. We expect these measures to dampen economic growth in both countries this year. For India, we are now projecting growth rates of 2.5% in 2020 followed by 5.8% next year," Moody's said in its Global Macro Outlook.

Optimism on 2021-22 numbers remain

While growth rates for 2020-21 remain dismal, there is optimism that 2021-22 may see a sharp rebound in business activity and growth. Already the world is seeing infections peaking out. In Spain and Italy deaths have started reducing and the Chinese city of Wuhan where the corona virus led infections began, is getting back to normal. Korea has already flattened the infection curve, sometime back and fatalities have started dropping.

It is highly possible that infections in India too would peak in the next few weeks. A gradual opening-up of the lockdown is possible in the next fortnight, with the country back on its feet in the month of June.

Some industries, particularly the hospitality and aviation industry may take time to recover. In about 6-9 months from now, it is highly possible that things would be getting to normal gradually.

It will be only right to also admit that a few businesses may see permanent damage, and joblessness may abound. Things may not be the same after the coronavirus infections abate, but, 2021-22 may look much better.