India’s fourth recession since Independence, first since liberalisation, and perhaps the worst to date, is here, global rating and research agency CRISIL on Tuesday said.
In a report on India’s growth forecast released today, titled "Minus Five", CRISIL forecast India’s GDP growth to fall off a cliff and contract 5 percent in fiscal 2021. The first quarter of the year, as per this report, will suffer a massive contraction of 25 percent.
Earlier on April 28, CRISIL had slashed its India growth prediction to 1.8 percent for FY21, from 3.5 percent forecast earlier, but it said “things have only gone downhill since” in its latest publication.
It now expects non-agricultural GDP to contract 6 percent, and adds that agriculture could cushion the blow by growing at 2.5 percent this fiscal.
"In the past 69 years, India has seen a recession only thrice – as per available data – in fiscals 1958, 1966 and 1980. The reason was the same each time – a monsoon shock that hit agriculture, then a sizeable part of the economy. The recession staring at us today is different," it said.
For one, CRISIL said, agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon. Two, the pandemic-induced lockdowns have affected most non-agriculture sectors. And three, the global disruption has upended whatever opportunities India had on the exports front, the report noted.
Permanent GDP Loss Inevitable
CRISIL believes it will be tough for India to return to its pre-pandemic growth levels at least for the next three years, irrespective of policy support. It estimates that under the base case scenario, India will suffer at least a 10 percent permanent loss to real GDP, assuming an average growth rate of 7 percent between fiscals 2022 and 2024. To be able to catch up to the pre-pandemic growth rates, India needs its average GDP growth to surge to 11 percent over the next three fiscals, "something that has never happened before," CRISIL noted.
Policy Response Inadequate
The agency in its report says that no response to a crisis of this proportion seems adequate. Commenting on the government’s Rs 20 lakh crore Aatma Nirbhar Bharat Abhiyan, it says the government’s short-term measures focus more on easing pain rather than providing immediate gain.
"The support to MSMEs, which constitutes the largest part of the government’s allocation, is indirect and dependent on implementation by banks. Several gaps remain in addressing the issues faced not only by the MSMEs and the poor, but also many other affected sectors which have not yet been given relief,” it said in this report.
However, the report adds that many significant reforms have also been announced under the scheme which, if designed and implemented well, could help improve India’s growth prospects in the long run.