Ind-Ra cuts India’s FY21 GDP growth further to 1.9%, lowest in 29 yrs

India Ratings and Research (Ind-Ra) on Monday revised its FY21 economic growth forecast for the country further down to 1.9%, lowest in the last 29 years, citing the COVID-19 pandemic and the subsequent lockdown.

According to Ind-Ra, Indian economy had registered a GDP growth of 1.1% in the financial year 1991-92.

In a note on Monday, Ind-Ra revised its economic growth estimate for the country from its forecast of 3.6% published on March 30, 2020 to to 1.9%.

Ind-Ra, noted that its growth projection is based on the assumption that the partial lockdown will continue till mid-May 2020.

According to Ind-Ra, "GDP may come back to the fourth quarter of 2019-20 fiscal level only by the third quarter (October-December) of current 2020-21 fiscal anticipating resumption of normal economic activities during second quarter (July-September) of 2020-21 and festive demand during third quarter of current fiscal (October-December)," it said.

The rating agency, however added that if the lockdown continues beyond mid-May 2020, and a gradual recovery takes root only from June-end, GDP growth may slip further to negative 2.1%, lowest in the last 41 years, and only the sixth instance of contraction since fiscal year 1957-58.

According to Ind-Ra, India's GDP in 1957-58 was negative 0.4%, in 1965-66 it was negative 2.6%, in 1966-67 it was negative 0.1%, in 1972-73 it was negative 0.6%, and in 1979-80 it was negative 5.2%.

For 2020-21, Ind-Ra expects retail inflation at 3.6%.

The rating agency said 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.

"Even without any significant fiscal stimulus Ind-Ra expects the fiscal deficit of the union government to escalate to 4.45% of GDP in 2020-21 fiscal (FY21 Budget Estimate: 3.5% of GDP) and a stimulus package of Rs 4 trillion would push it to 6.0% of GDP," it said.