Indian analytical company Crisil Research has said that the coronavirus pandemic could lead to a permanent 4% loss in the country’s Gross Domestic Product, The Hindu reported on Thursday.
“Base case GDP growth expected at 1.8% for fiscal 2021,” Crisil said in a report. “Risks tilted towards the downside scenario of zero GDP growth. India grew at 4.7% in the third quarter of 2019-’20, but that was before the coronavirus pandemic hit the country. The company said that fiscal support from the government needs to increase, and cover firms as well.”
Global credit rating agency Moody’s Investors Service had on April 28 cut India’s growth forecast for the year 2020 from 2.5% to 0.2%.
Crisil warned that the GDP growth rate may slip towards 0% in 2020-’21 if the nationwide lockdown imposed to combat the coronavirus is extended beyond May 3. “There will be 4% permanent loss to GDP, and the economy is unlikely to recover for the next three years,” Crisil Chief Economist DK Joshi said.
He said that even if India grows at 7% from 2021-’22, it will not catch up with the loss in GDP during 2020-’21. The economy would have to grow at 8.5% between 2021-’22 and 2023-’24 to erase the loss.
Joshi said that India’s fiscal policy will need to be “flexible as well as responsive”. He said the Indian government must consider “top-up welfare measures” to address the disruption of household incomes of the vulnerable part of the population. The policy must also provide support for micro, small and medium enterprises, the economist added.
The company said that the government will have to provide fiscal support of up to Rs 3.5 lakh crore to revive the economy. On March 25, Finance Minister Nirmala Sitharaman had announced a financial package of Rs 1.7 lakh crore. The benefits – through cash and food – were targeted at farmers, migrant workers, the poor, women and the disabled, among others. Sitharaman heads an economic task force announced by Prime Minister Narendra Modi to plan a response to the upcoming financial crisis.
Crisil also predicted that gross non-performing assets of banks could swell to between 11% and 11.5% of GDP in 2020-’21 from about 9.5% last fiscal.
India has reported 33,610 cases of Covid-19, including 1,075 fatalities, according to the Ministry of Health and Family Welfare.