India Ratings and Research (Ind-Ra) recently revised its gross domestic product (GDP) growth for fiscal 2020-21 further down to 1.9 per cent from its last month’s forecast of 3.6 per cent. This will be the lowest GDP growth in the last 29 years and is based on the assumption that the partial lockdown will continue till mid-May. GDP growth for fiscal 1991-92 was 1.1 per cent.
Ind-Ra’s estimate suggests that GDP may come back to the level of last fiscal’s fourth quarter only by the third quarter of the current fiscal, anticipating resumption of normal economic activities during the second quarter and festive demand during the third, the rating agency said in a press release.India Ratings and Research has revised its gross domestic product (GDP) growth for fiscal 2020-21 down to 1.9 per cent from its last month's forecast of 3.6 per cent. This will be the lowest GDP growth in the last 29 years and is based on the assumption that the partial lockdown will continue till mid-May. GDP growth for fiscal 1991-92 was 1.1 per cent.#
However, if the lockdown continues beyond mid-May and a gradual recovery takes root only from end-June 2020, GDP growth may slip further to negative 2.1 per cent, lowest in the last 41 years and only the sixth instance of contraction since fiscal 1951-52.
The proactive intervention of the Reserve Bank of India (RBI) notwithstanding the spill over impact of COVID-19 has percolated into the financial markets as well, choking the credit channels and raising the risk aversion.
Ind-Ra’s retail inflation estimate for this fiscal is 3.6 per cent. Retail inflation had breached the RBI’s upper bound of 6 per cent in December 2019 and peaked in January this year, before the receding prices of vegetables, fruits and petroleum products brought it down to 5.9 per cent in March 2020.
On the fiscal front, the dip in tax/non-tax revenue due to the lockdown/growth slowdown coupled with the need to provide fiscal stimulus will destabilise the fiscal arithmetic of both union and state governments, Ind-Ra said.
Even without any significant fiscal stimulus Ind-Ra expects the fiscal deficit of the government to escalate to 4.4 per cent of GDP in this fiscal and a stimulus package of ₹4 trillion would push it to 6.0 per cent of GDP.
ALCHEMPro News Desk (DS)
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