The fall from the worst
In our May 26, 2020, GDP outlook, we said India’s worst recession in decades was at hand. Come September, and we foresee it contracting further by a rate not seen since the 1950s.
- Growth outlook for fiscal 2021: CRISIL revises its real GDP growth forecast for India in fiscal 2021 to -9% from -5% projected in May. With the pandemic’s peak not yet in sight and the government not providing adequate direct fiscal support, the downside risks to our earlier forecast have materialised. If the pandemic were to peak out in September-October, GDP growth could move into mildly positive territory towards the end of this fiscal. Even in that event, manufacturing is expected to revive faster compared with services. But the risks to our outlook remain tilted to the downside tillsuch time a vaccine is found and mass produced
- Permanent scars: We expect a permanent loss of 13% of real GDP over the medium term. In nominal terms, this amounts to Rs 30 lakh crore*. This is much higher than a 3.0% permanent hit to GDP in Asia-Pacific economies (ex-China and India) over the medium run estimated by S&P Global in June1. Catch-up with the pre-pandemic trend value of real GDP would require average real GDP growth to surge to 13% annually for the next three fiscals – a feat never before accomplished by India
- The viral drag: The number of confirmed Covid-19 cases have crossed 42 lakh as on September 7 and India continues to be the largest contributor to the daily global tally.
- The overall caseload still remains concentrated in states which have a major share in India’s GDP: Maharashtra, Tamil Nadu, Karnataka and Andhra Pradesh together account for ~54% of India’s total confirmed cases as on September 7, and ~36% of India’s GDP
- The pandemic is now rapidly spreading from metropolitan to smaller cities and rural areas. Of all the districts with 1,000+ cases, almost half were rural as on August 31, up from 20% in June
- The stringency of lockdown (as per the Oxford Stringency Index) has reduced from its April-May level as the Indian government started opening up economic activities. But the index has broadly plateaued since June as there has been back and forth on containment measures, with regions facing faster spread reintroducing restrictions and others relaxing them
- Second-quarter GDP growth expectation: Highfrequency indicators, both conventional and unconventional (such as Google’s Community Mobility Reports), correlate reasonably well with GDP estimates. In the April-June quarter, GDP contracted 23.9% (against our forecast of 25%), but that did not come as a surprise as these indicators were indicating a deep hit. But thereafter, till August end, they showed recovery from April levels, yet remained below pre-pandemic levels, implying the economic contraction continued, albeit less severely than in the first quarter. Hence, we expect GDP to contract 12% on-year in the second quarter of fiscal 2021
1June 25, 2020, S&P Global Ratings, “Asia-Pacific Losses Near $3 Trillion As Balance Sheet Recession Looms”
*1 lakh crore = 1 trillion, 1 lakh = 100,000, 1 crore = 10 million
