In the wake of the coronavirus outbreak, credit rating agency, India Ratings and Research (Ind-Ra) has cut India’s gross domestic product (GDP) growth further down to 1.9% for FY21 from its forecast of 3.6% published on March 30, 2020. As per the latest report, this will be the lowest GDP growth in the last 29 years (FY92: GDP grew 1.1%) and is based on the assumption that the partial lockdown will continue till mid-May 2020.
The rating agency is expecting GDP may come back to the Q4 FY20 level only by Q3 FY21, anticipating resumption of normal economic activities during Q2 FY21 and festive demand during Q3 FY21. However, it said that if the lockdown continues beyond mid May 2020 and a gradual recovery takes root only from end-June 2020, GDP growth may slip further to negative 2.1%, lowest in the last 41 years and only the sixth instance of contraction since FY52.
On the fiscal front, Ind-Ra noted that 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. Even without any significant fiscal stimulus, Ind-Ra expects the fiscal deficit of the union government to escalate to 4.4% of GDP in FY21 (FY21 Budget Estimate: 3.5% of GDP) and a stimulus package of Rs 4 trillion would push it to 6.0% of GDP.