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India’s Real GDP Growth to Contract by 9% in FY21: CRISIL

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Crisil projects 9 pc GDP contraction in FY21

On September 10, 2020 The latest report of the rating agency CRISIL projects India’s real GDP (Gross Domestic Product) growth to contract by 9%(-9%) in FY21(2020-2021) as COVID-19 infections are yet to peak and the government is not providing adequate direct fiscal support. Earlier in May, 2020 the rating agency projected that Indian economy will contract by 5%(-5%) in FY21.

Note- 9% contraction will be the highest since the 1950s.

The Indian economy contracted by 23.9% in the 1st quarter(April-June) of FY21.

Key Info

  • A relief package of Rs 20 lakh crore was announced by the government, but the actual new expenditure was less than 2% of GDP.
  • The rating agency’s forecast of May had assumed additional direct fiscal support of 1 % of GDP, which has not come through.

Highlights of the Report

Quarter

India to contract by 12% on-year in the 2nd quarter of FY 21

Permanent Loss

i.It expects a permanent loss of 13% of real GDP over the medium term. In nominal terms, this amounts to Rs 30 lakh crore

ii.This is much higher than a 3 % permanent hit to GDP in Asia-Pacific economies estimated by S&P Global Ratings.

iii.In order to equalise with the pre-pandemic trend value of real GDP, the average real GDP growth is required to rise to 13% annually for next 3 fiscals, which is a record India has not achieved before.

Agriculture

Agriculture to grow by 2.5% in the current fiscal year. The rating agency informed that this sector lacked the capacity to offset the sharp contraction in other sectors of the economy, which accounted for 85% of GDP.

Other Projections

i.It expects a 10% growth in FY22, against the backdrop of a very weak site and some benefits from the effects of rising-global-wave-lifting-all boats.

Even so the real GDP can catch up to FY20 level by FY22.

ii.It also expects an average 6.2% growth annually over the next 3 year, i.e., between FY23 and FY25.

Recent Related News:

i.As per the report of DBS(Formerly, Development Bank of Singapore), Singaporean brokerage, India’s Gross domestic Product(GDP) will contract by 6%(-6%) in FY21 as the economy is yet to stabilise the COVID -19 infection curve and due to the caseload in the economically key states. This will affect the economy badly. In its earlier forecast, the brokerage had forecasted the growth as -4.8%.

ii.On June 1, 2020 Rating agency Moody’s expects India’s real Gross Domestic Product(GDP) to contract by 4% in fiscal 2021 due to the COVID-19 pandemic and related lockdown measures. India’s foreign-currency and local- currency long-term issuer ratings have been downgraded to Baa3 from Baa2. 

  • Meanwhile India’s local-currency senior unsecured rating was also reduced to Baa3 from Baa2, and its short-term local currency rating to Prime(P)-3 from P-2. The outlook remains negative.

About CRISIL: 
It is India’s first credit rating agency.
Managing Director(MD) and Chief Executive Officer(CEO) Ashu Suyash 
Headquarters– Mumbai, Maharashtra