Mumbai (Maharashtra) [India], Mar 30 (ANI) India Ratings and Research (Ind-Ra) on Monday revised its new financial year 2020-21 gross domestic product (GDP) growth down to 3.6 per cent from 5.5 per cent.
The key reasons are the spread of COVID-19 and the resultant nation-wide lockdown imposed till April 14, crippling most economic and commercial activities.
The revision is based on the assumption of lockdown continuing till end-April 2020 (full or partial) and gradual restoration of economic activities May onwards.
In view of the lockdown, Ind-Ra has even revised the FY20 GDP forecast downward to 4.7 per cent (9M FY20: 5.1 per cent) from the National Statistical Office's advance estimate of 5 per cent.
Ind-Ra expects the GDP growth to come in at 3.6 per cent in 4Q FY20 and 2.3 per cent in 1Q FY21. Average growth is forecasted to decelerate to 2.8 per cent in 1H FY21 (1H FY20: 5.3 per cent) and recover to 4.3 per cent in 2H FY21 (2H FY20: 4.2 per cent) due to the base effect and a gradual recovery and restoration of supply chain.
"Some of the initial and visible impact of spreading on India economy has been disruption in production of select manufacturing sectors due to breakdown of supply chain, near collapse of tourism, hospitality and aviation sectors and a rise in the work load of healthcare sector," it said.
Also, micro, small and medium enterprises, irrespective of the sector they operate in, have begun to witness cash flow disruptions. This is not to say that other sectors were not impacted or are not likely to be impacted.
However, some of the services sectors such as financial services, IT and IT-enabled services have greater flexibility in their operations and they quickly readjusted or are readjusting their operations by allowing employees to work from home.
Yet, the panic has gripped the Indian capital markets like elsewhere in the world. 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 will 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 the farmers' income and rural demand.
A stop on the construction activities will accelerate the problems of the real estate sector which is still struggling to access funding in the middle of a meltdown in the non-banking finance companies 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 and hospitality will decline.
Ind-Ra expects the government to announce more measures in the coming days and weeks to mitigate the pains and concerns of the other segments and sectors of the society and economy.
The government's role is crucial in terms of containing the spread of COVID-19 and simultaneously mitigating the adverse impact of lockdown on the economy. Although there is limited available fiscal space, Ind-Ra believes this extraordinary situation demands extraordinary measures. (ANI)