Rating agency Crisil on Thursday slashed its FY21 growth forecast for India by as much as 170 basis points to 3.5%, citing the damaging impact of the Covid-19 outbreak, as it revised downwards its projection for the second time in a week. Even the latest forecast, according to Crisil chief economist Dharmakirti Joshi, assumes two benign things: a normal monsoon and the effect of the pandemic subsiding materially, if not wearing out, in the April-June quarter.
"The slump in growth will be concentrated in the first half of the next fiscal, while the second half should see a mild recovery," Joshi said. The agency said the Rs 1.7-lakh-crore package announced by the government, directed at the most vulnerable sections of the society in rural and urban areas, is well designed and targeted. But more measures are necessary to offset business disruptions, including loan forbearance for small and medium enterprises, and households whose incomes have been materially impacted, impairing their ability to service loans.
In recent months, around half a dozen established agencies trimmed their GDP growth forecasts for India to the 5.1-5.4% range. However, given the current pan-India lockdown and the Covid-19 spread, these projections are expected to be slashed substantially. As for FY20, while the government last month predicted the growth at 5%, it is all set to be revised down, thanks to lower-than-expected expansion in the March quarter.
The impact of social distancing and the decline in discretionary spending will aggravate the downturn in the April-June quarter, and the sharp slowdown in key trading-partner economies will slam exports.