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Lockdown extension beyond May can lower growth to zero, says CRISIL

The sharp deceleration in growth and increased income uncertainty is certain to pull demand down, it says

Coronavirus | GDP growth | Lockdown

BS Web Team & Agencies  |  New Delhi 

GDP growth

Rating agency CRISIL has downgraded its growth outlook for India in 2021 fiscal 2021 to 1.8 per cent from the earlier estimated 3.5 per cent after factoring in the nationwide

The forecast by the rating agency assumes the effect of the pandemic subsiding materially in the current quarter, besides a normal monsoon, and minimum fiscal support of Rs 3.5 trillion.

Fiscal support may need to be increased at the central and state levels to ensure relief reaches — to vulnerable households as well as vulnerable firms, especially micro, small and medium enterprises (MSMEs), the global analytics company said in its research report.

It also said that there is a possibility that the economy will continue to face restrictions beyond May 3, 2020, when the 40-day is scheduled to end. It also guaranteed a global recession because of the deep contraction in advanced countries.

"Risks to our India forecast are tilted to the downside, manifestation of which could take growth to even zero," CRISIL Research said.

Dharmakirti Joshi, Chief Economist, CRISIL said, "We see a permanent loss of 4 per cent of Fiscal 2022 is likely to see a V-shaped recovery at over 7 per cent real growth. But even assuming growth sustains at this level for the next three years, real GDP will stay below its pre-Covid-19 trend path."

"The has started hurting already. In March, for instance, automobile sales contracted 44 per cent on-year even as exports fell 35 per cent with worst yet to come. This deep slowdown and across the broad plain 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 Rs 12 trillion indicates that about 52% of the employee cost is incurred by companies in sectors that will see a material increase in stress in case of an 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 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 expected this fiscal, MSME working capital can stretch by over a month.

Prasad Koparkar, Senior Director and Head - Growth, Innovation and Excellence Hub, CRISIL said, "As India Inc stares at a double-digit slide in revenue this fiscal, the worst in at least a decade, Ebitda is set to fall sharply - by over 15 per cent - in our base case scenario of 1.8 per cent The adverse impact of operating leverage due to sharp revenue decline will drown all the benefits accruing from lower material and energy costs following across-the-board decline in commodities."

According to the report, poor credit growth, including retails loans, along with rising NPAs and credit costs will singe banks and NBFCs. We expect 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 non-banking finance companies, with microfinance, MSME loans and wholesale/developer funding witnessing the sharpest spike. Asset quality deterioration will, however, remain moderate in housing loans and gold finance with less than 50 bps increase in NPAs, the report stated.

First Published: Fri, May 01 2020. 11:36 IST