CRISIL revises India's growth outlook to 1.8% for 2020-21

05 May '20

3 min read

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CRISIL has revised its growth outlook for India in fiscal 2021 down to 1.8 per cent, from the 3.5 per cent estimated earlier, factoring the nationwide lockdown to control the COVID-19 pandemic. The forecast assumes the effect of the pandemic subsiding materially in the current quarter, besides a normal monsoon, and minimum fiscal support of ₹3.5 lakh crore.

Fiscal support may need to be even increased at the central and state levels to ensure relief reaches, apart from vulnerable households, even vulnerable firms, especially micro, small and medium enterprises (MSMEs), CRISIL said in a press release.

Risks to the rating agency’s India forecast are tilted to the downside, manifestation of which could take the gross domestic product (GDP) growth to even zero, the rating agency said.

“We see a permanent loss of nearly 4 per cent of GDP. Fiscal 2022 is likely to see a V-shaped recovery at over 7 per cent real GDP growth. Bwut even assuming growth sustains at this level for the next three years, real GDP will stay below its pre-COVID-19 trend path,” according toCRISIl chief economist Dharmakirti Joshi.

The lockdown, has started hurting already. This deep slowdown and across the board pain leaves large swathes of India’s informal workforce vulnerable, particularly in construction, manufacturing and services sectors. The most affected are daily-wage earners and those with no job security. In India, casual labourers form almost 25 per cent of the workforce and would take the first hit due to shutdowns and layoffs.

The situation is bad for the formal workforce, too. A CRISIL Research analysis of over 40,000 companies with employee cost of ₹12 lakh crore indicates that about 52 per cent of the employee cost is incurred by companies in sectors that will see material increase in stress in case of extended lockdown.

The sharp deceleration in growth and increased income uncertainty is certain to pull demand down. In the year ahead, we expect consumer discretionary services and products such as airlines, hotels, automobiles and consumer durables to be the worst-hit. Non-pharma exporters, real estate and construction companies also face one of their worst years. Even resilient sectors such as information technology (IT) services will see muted growth as global budgets on IT spending fall.

MSMEs are more vulnerable than larger players, especially on the liquidity front. CRISIL’s research suggests that even in a relatively milder slowdown than it expects this fiscal, MSME working capital can stretch by over a month.

Poor credit growth, including retails loans, along with rising non-performing assets (NPAs) and credit costs will singe banks and non-banking financial companies (NBFCs). CRISIL expects banking sector NPAs to rise to 11-11.5 per cent by March 2021 from an estimated at 9.6 per cent as of March 2020, with sharply lower recoveries and rising slippages. NPAs are expected to swell for NBFCs as well, with microfinance, MSME loans and wholesale/developer funding witnessing the sharpest spike.

Fibre2Fashion News Desk (DS)

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