“Our results indicate that at all India level, PCI will decline by 5.4 per cent in FY21 to Rs 1.43 lakh. This decline in PCI is higher than the nominal GDP decline of 3.8 per cent. Globally also, the decline in per capita GDP of 6.2 per cent in 2020 is significantly greater than the 5.2 per cent decline in global GDP,” wrote Dr. Soumya Kanti Ghosh, group chief economic adviser, State Bank of India.
Rich states (states whose per capita income
is greater than all India average), the report says, will be most affected in PCI terms. For instance, in Delhi and Chandigarh, the decline in PCI is almost thrice than the decline at all India level.
“A total of 8 states and Union Territories are supposed to witness a decline in PCI in double digits in FY21 and that is most alarming. These states constitute as much as 47 per cent of India’s GDP. This is due to the fact that these are the urban areas (and red zones also) where lockdown
was implemented most severely. The closure of markets, shopping complexes, and malls adversely affected the income of these areas. Even after the opening of markets (in a staggered manner), the number of customers is still 70-80 per cent less than the normal times," Ghosh said.
For India, SBI has projected a GDP decline of 6.8 per cent for FY21 and expects a ‘statistical V-shaped recovery / Swoosh’ in FY22 primarily due to the favourable base effect. “Beyond such base effect, it would however take at least till FY24, if India replicates the best case example in history, if not more before India gets back to pre-pandemic level growth rate,” Ghosh said.
In this backdrop, Ghosh advocates an aggressive policy response from India’s policy-makers. India's sovereign rating in FY22, Ghosh says, will be determined by such policy response and not by fiscal measures.
Over the past few weeks, global rating agencies such as Fitch, S&P and Moody’s have lowered India’s sovereign ratings and have cautioned against the deteriorating fiscal situation in the backdrop of Covid-19 pandemic.
Based on the commentary by the three rating agencies, analysts at Nomura say there are three main tests India must face before its ultimate rating outcome is determined – the extent to which the economy recovers from the pandemic; whether burgeoning financial stability risks can be contained; and whether the damage to the medium-term fiscal outlook can be addressed by a credible post-pandemic fiscal consolidation roadmap.
“While rating agencies are cutting the economy some slack for the next six months or so, 2021 remains a crucial year for India to either disprove or affirm these concerns. We see the potential for the next rating action to occur as early as the end of 2020 or the start of 2021,” wrote Sonal Varma, managing director and chief India economist at Nomura in a June 18 co-authored report with Aurodeep Nandi.