Rating agency CRISIL has slashed the base-case gross domestic product (GDP) growth forecast for fiscal 2021 for the Indian economy to 3.5% from 5.2% expected earlier. "Since our last forecast of 5.2% GDP growth for fiscal 2021, the scenario has worsened notably. S&P Global has marked global growth down significantly, predicting likely recession in the US and the Eurozone, and lowering Chinese growth to 2.9% from 4.8% with dominant downside risks.
The pandemic in India and the consequent lockdown for 21 days pose a material risk to our India economic outlook. The adverse effects that will follow can dwarf the gains from the sharp drop in crude oil prices, and the anticipated monetary and fiscal stimuli," the rating agency has observed.
It has pointed out that the latest high-frequency data on the impact of the pandemic, such as industrial production, PMI and exports is not yet available. So beware the Ides of March.
Says Dharmakirti Joshi, Chief Economist, CRISIL, "We have slashed our base-case gross domestic product (GDP) growth forecast for fiscal 2021 to 3.5% from 5.2% expected earlier. This assumes two things: a normal monsoon, and the effect of the pandemic subsiding materially, if not wearing out, in the April-June quarter. The slump in growth will be concentrated in the first half of next fiscal, while the second half should see a mild recovery."
According to CRISIL, the impact of social distancing and decline in discretionary spending will aggravate the downturn in the April-June quarter, and the sharp slowdown in key trading-partner economies will slam exports.
"Services, which now account for 41% of total exports, have been resilient so far. But a recession in the advanced economies would dampen prospects for IT-ITES, tourism and bring down services exports growth.
The ongoing lockdown is bringing manufacturing and services to a grinding halt and disrupting domestic supply chains. As revenue streams of companies get impacted, daily wagers and temporary workers will be in the firing line," the rating agency has noted.