On Thursday, rating agency CRISIL said in its report that it projects the Indian economy to contract by 9 percent in the financial year 2020-21 as the coronavirus infections are yet to peak and the government is not providing adequate direct fiscal support.
In May, the agency had estimated the economy to contract by 5 percent.
The latest projection comes days after the Indian government released official data for the June-ended quarter that showed a contraction of 23.9 percent in the economy.
CRISIL said the 9 percent contraction will be the highest since the 1950s. It also said that while the government had announced a Rs 20 lakh crore relief package (AtmaNirbhar Bharat package), the actual new spending was less than 2 percent of GDP.
"With the pandemic's peak not yet in sight and the government not providing adequate direct fiscal support, the downside risks to our earlier forecast have materialised," the agency said.
"A stretched fiscal position has constrained the government from spending more to support the economy. Till date, the policy push to growth remains muted, except in pockets. Our May forecast had assumed additional direct fiscal support of 1 percent of GDP, which has not come through," the agency said.
It added that if the pandemic were to peak out in September-October, GDP growth could move into mild positive territory towards the end of this fiscal.
India has overtaken Brazil as the second worst-hit country with over 42 lakh coronavirus cases. Even as many analysts have been pitching for a sharp rebound or a v-shaped recovery, Crisil said the pandemic will leave a "permanent scar".
"We expect a permanent loss of 13 percent of real GDP over the medium term," it said, pegging its value in nominal terms at Rs 30 lakh crore and added that this is much higher than a 3 percent permanent hit to GDP in Asia-Pacific economies estimated by its parent S&P.
A "catch-up" with the pre-pandemic trend value of real GDP would require average real GDP growth to surge to 13 percent annually for the next three fiscal years, which is a feat never accomplished by India before, it said.