Base-case GDP growth forecast cut 150 basis points to 9.5% for this fiscal

The second Covid-19 wave has thrown cold water over the Indian economy that was beginning to warm up after the most severe contraction since Independence.

The rash of afflictions that followed forced states to lock down, hurting consumer and business confidence yet again.

Mercifully, daily cases seem to have peaked for now, though they remain above the peak of the first wave. But the risks of another wave and tardy vaccinations mean states would be chary of fully unlocking anytime soon.

That is unlike what we saw last fiscal, when a largely uniform and calibrated reopening spurred quite a sharp recovery.

Consequently, CRISIL is lowering its gross domestic product (GDP) growth forecast for India to 9.5% for the current fiscal, compared with 11% expected earlier.

The downward revision is premised on the clearly evident hit to the two engines of growth – private consumption and investment – by the second wave.

Our new base forecast assumes that Covid-19 restrictions will continue and mobility will remain affected in some form or other, at least till August. The pace of economic recovery will also be a function of what the pace of vaccination is in the coming months.

We find that countries with over 40% of their population vaccinated are seeing a faster and more broad-based economic recovery (see section, ‘Vaccination: the only way to faster, broad-based recovery’ for details).

The government plans to vaccinate India’s entire adult population (68% of total population) by this December – a tall order even if there are sufficient vaccines available.

CRISIL’s base case is 70% of the adult population vaccinated by December.

A third wave would pose a significant downside risk to the growth forecast, as would a slower-than-anticipated pace of vaccination.

In such a pessimistic case, we see GDP growing at 8%.