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Ind-Ra cuts FY21 GDP growth estimate for India to 3.6%
01 Apr '20
3 min read
Pic: Shutterstock
India Ratings and Research (Ind-Ra) recently slashed its gross domestic product (GDP) growth estimate for India for fiscal 2020-21 to 3.6 per cent from 5.5 per cent. The reasons cited are the COVID-19 outbreak and the nationwide lockdown till April 14, assuming that the lockdown will continue till April end either fully or partially and economic activities are restored beginning May.
Ind-Ra has even revised downward the GDP forecast for fiscal 2019-20 to 4.7 per cent from the National Statistical Office’s advance estimate of 5.0 per cent. Ind-Ra expects the GDP growth to come in at 3.6 per cent in the fourth quarter of the current fiscal and 2.3 per cent in the first quarter of the next fiscal, which begins today.
The average growth is projected to decelerate to 2.8 per cent in the first half of the next fiscal and recover to 4.3 per cent in the second half due to the base effect and a gradual recovery and restoration of supply chain, the rating agency said in a press release.
A changed outlook of investors has led to a huge outflow of capital and the rupee has come under intense pressure. Also, significant wealth erosion would impact the consumption levels.
With the rabi crop maturing, disruption in harvesting and inability of agricultural markets to timely procure them could be a blow to farmers’ income and rural demand, Ind-Ra said.
A stop on construction activities will accelerate the problems of the real estate sector, which is struggling to access funding in the middle of a meltdown in the non-banking finance companies (NBFC) and banking sectors.
After agriculture, construction is the largest employment generator in the Indian economy. Closure of non-essential commercial establishment and multiplexes will have a ripple effect on many sectors. Demand for consumer durables, entertainment, sports, wholesale trade, transport, tourism, hospitality etc. will decline, said the rating agency.
Several manufacturing activities will de-risk their operations by shifting outside China. Also, the disruption in supply chain, especially in sectors like automobiles, pharmaceuticals, electronics and chemical products, could be an incentive for Indian manufacturing sector to become part of the supply chain. Ind-Ra believes this will require significant government and policy support and will play out only in the medium- to long-term.
One of the near-term advantages of the spread of COVID-19 for the Indian economy would be lower global commodity prices, especially crude oil. However, to what extent this could benefit the Indian economy would depend on the pace of restoration of normalcy and the ability and nimbleness of the Indian businesses to take advantage of this opportunity.
However, converting this advantage to an opportunity would not easy, because the Indian economy is reeling under low consumption and low investment growth, coupled with rupture in the financial system.
Ind-Ra expects the government to announce more measures in the coming weeks to mitigate the pains and concerns of the other segments of the society and economy.
Ind-Ra has even revised downward the GDP forecast for fiscal 2019-20 to 4.7 per cent from the National Statistical Office’s advance estimate of 5.0 per cent. Ind-Ra expects the GDP growth to come in at 3.6 per cent in the fourth quarter of the current fiscal and 2.3 per cent in the first quarter of the next fiscal, which begins today.
The average growth is projected to decelerate to 2.8 per cent in the first half of the next fiscal and recover to 4.3 per cent in the second half due to the base effect and a gradual recovery and restoration of supply chain, the rating agency said in a press release.
A changed outlook of investors has led to a huge outflow of capital and the rupee has come under intense pressure. Also, significant wealth erosion would impact the consumption levels.
With the rabi crop maturing, disruption in harvesting and inability of agricultural markets to timely procure them could be a blow to farmers’ income and rural demand, Ind-Ra said.
A stop on construction activities will accelerate the problems of the real estate sector, which is struggling to access funding in the middle of a meltdown in the non-banking finance companies (NBFC) and banking sectors.
After agriculture, construction is the largest employment generator in the Indian economy. Closure of non-essential commercial establishment and multiplexes will have a ripple effect on many sectors. Demand for consumer durables, entertainment, sports, wholesale trade, transport, tourism, hospitality etc. will decline, said the rating agency.
Several manufacturing activities will de-risk their operations by shifting outside China. Also, the disruption in supply chain, especially in sectors like automobiles, pharmaceuticals, electronics and chemical products, could be an incentive for Indian manufacturing sector to become part of the supply chain. Ind-Ra believes this will require significant government and policy support and will play out only in the medium- to long-term.
One of the near-term advantages of the spread of COVID-19 for the Indian economy would be lower global commodity prices, especially crude oil. However, to what extent this could benefit the Indian economy would depend on the pace of restoration of normalcy and the ability and nimbleness of the Indian businesses to take advantage of this opportunity.
However, converting this advantage to an opportunity would not easy, because the Indian economy is reeling under low consumption and low investment growth, coupled with rupture in the financial system.
Ind-Ra expects the government to announce more measures in the coming weeks to mitigate the pains and concerns of the other segments of the society and economy.
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