FY21 GDP to contract 5%; pre-virus level unlikely in next 3 fiscals: Crisil

It will really be a long road to recovery and going back to the pre-Covid-19 gross domestic product (GDP) rate in India will not be possible for the next three fiscals, says the latest report by Crisil, which expects the Indian economy to contract 5 per cent in fiscal 2021.

With this, research and rating agency has revised its forecast downwards yet again after it slashed the rate of growth on April 28 to 1.8 per cent from its earlier forecast of 3.5 per cent growth.

Extension in lockdown, higher economic costs and an economic package that lacked muscle are the three key reasons why Crisil has downgraded the GDP forecast now. “The economic costs now beginning to show up in the hard numbers are far worse than our initial expectations. Given one of the most stringent lockdowns in the world, April could well be the worst performing month for India this fiscal,” Crisil said.

Though they expect non-agricultural GDP to contract 6 per cent, agriculture could cushion the blow by growing at 2.5 per cent in fiscal 2021, Crisil said.

“The recession staring at us today is different. For one, agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon. Two, the pandemic-induced lockdowns have affected most non-agriculture sectors. And three, the global disruption has upended whatever opportunities India had on the exports front,” wrote Dharmakirti Joshi, chief economist at Crisil in a May 26 co-authored report.

In the past 69 years, Crisil said, India has seen a recession only thrice – as per available data – in fiscals 1958, 1966 and 1980. The reason was the same each time – a monsoon shock that hit agriculture, then a sizeable part of the economy.

With the government likely to spell out the road ahead for the lockdown over the coming weekend, Crisil expects states with high and rising Covid-19 cases to continue with restrictions, which will be a drag on the economy.

“Unless the entire supply chain is unlocked, the impact of improved economic activity will be subdued. Despite the stringency of lockdown easing a tad in the third and the fourth phases, their negative impact on GDP is expected to massively outweigh the benefits from mild fiscal support and low crude oil prices, especially in the April-June quarter. Consequently, we expect the current quarter’s GDP to shrink 25 per cent on-year,” Joshi wrote.

In another report on Tuesday, State Bank of India (SBI) expects the Indian economy to have grown at a mere 1.2 per cent in the last quarter of the previous fiscal as the Covid-19 induced lockdown brought activity to a standstill.

According to the SBI's Ecowrap report, GDP growth is likely to be 4.2 per cent for FY20 and contract 6.8 per cent in FY21. The fourth-quarter GDP growth number for FY20 will be announced by the National Statistical Office (NSO) on May 29.