Days after the Reserve Bank of India (RBI) said that India's GDP growth for the financial year 2020-21 may remain in the negative territory, CRISIL has projected that the country's economy contract by 5% this fiscal, downgrade from its previous estimate of 1.8% growth.
In a report, Crisil said that although non-agricultural GDP is expected to contract 6%, agriculture could cushion the blow by growing at 2.5%.
It said "things have only gone downhill since" its previous forecast of 1.8% growth on April 28.
The report noted that as per the available data, in the past 69 years, India has seen a recession only thrice, in fiscal years 1958, 1966 and 1980. The reason was the same each time, a monsoon shock that hit agriculture, then a sizeable part of the economy.
"The recession staring at us today is different. For one, agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon. Two, the pandemic-induced lockdowns have affected most non-agriculture sectors," it said, adding that the global disruption also has upended whatever opportunities India had on the exports front.
Laying down the factors for the downward revision GDP outlook, Crisil said that latest studies by the Public Health Foundation of India and the World Health Organization suggest the pandemic spread could peak by mid-July, implying that even if the nationwide lockdown is lifted after May 31, states with high and rising COVID-19 cases could continue with restrictions, which will be a drag on the economy.
It, however, said that on the positive side the Indian Meteorological Department expects the southwest monsoon this year to be 96-104% of the long-period average, which augurs well for agriculture and crude oil prices are expected to average $30 per barrel in fiscal 2021, cushioning the economy.
Talking of the economic package recently announced by the Centre, it said that the package has some short-term measures to cushion the economy, but sets its sights majorly on reforms, most of which will have payoffs only over the medium term (more details in the next section).
"We estimate the fiscal cost of this package at 1.2% of GDP, which is lower than what we had assumed in our earlier estimate (when we foresaw a growth in GDP)," it said.
It said that successive lockdowns have a non-linear and multiplicative effect on the economy and a two-month lockdown will be more than twice as debilitating as a one-month imposition, as buffers keep eroding.
Partial relaxations continue to be a hindrance to supply chains, transportation and logistics, it said, adding that unless the entire supply chain is unlocked, the impact of improved economic activity will be subdued.
"Therefore, despite the stringency of lockdown easing a tad in the third and the fourth phases, their negative impact on GDP is expected to massively outweigh the benefits from mild fiscal support and low crude oil prices, especially in the April-June quarter. Consequently, we expect the current quarter's GDP to shrink 25% on-year," it said.