Crisil projects wider GDP contraction for FY21 at 9%, from 5% earlier

India's GDP fell 23.9 per cent in the first quarter of FY21
CRISIL on Thursday predicted India’s gross domestic production (GDP) to contract 9 per cent in the financial year 2020-21 (FY21), revising its forecast down from 5 per cent owing to uncertainty over the spread of Covid-19 and lack of adequate fiscal support from the government.

The revision in the forecast comes days after the official data showed GDP fell 23.9 per cent in Q1. The rating agency sees the economy contracting 12 per cent in Q2.

In a report, it said if the infections were to peak in September-October, GDP growth could move into positive territory towards the end of FY21. “Even in that event, manufacturing is expected to revive faster compared to services. But the risks to our outlook remain tilted to the downside till such time a vaccine is found and mass produced.”


CRISIL sees the medium-term growth path for India trending down. “We see growth at 10 per cent in FY22, on the back of a very weak base and some benefit from the rising-global-tide-lifting-all-boats effect. Even with that, real GDP will only merely catch up to FY20 level by FY22. Beyond that, we see growth averaging 6.2 per cent annually over the next three years — between FY23 and FY25.”

It said 13 per cent of GDP at constant prices will be permanently lost in the medium term. Calling for reforms to revive investments and create jobs, CRISIL said the truth with reforms is that you bite the bullet first and reap the benefits later. To balance it out, the rating agency said the government needs to take more steps to address the current pain in the economy. It should stretch itself fiscally to support vulnerable households and small businesses  hit hard by the pandemic.


This will also help preserve productive capacity in the economy and together with reforms can create a sustainable push to growth over the medium term.

Meanwhile, ICRA said the economy is recovering from the lows seen in Q1. However, the pace of improvement in Q2 is fragmented with a sharper momentum in industry relative to services amid a continuing healthy outlook for agriculture. “In our view, the contraction of GDP will norrow considerably to 11-13 per cent in Q2,” it said. ICRA maintained its forecast for contraction at 9.5 per cent for FY21.



Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel