The COVID-induced nationwide lockdown will likely result in a permanent loss of 4 per cent of gross domestic product for India, Crisil Research stated on Thursday. While the economy is likely to recover there will be a certain amount of economic activity that will not be recovered and this is estimated to be 4 per cent of GDP, The Indian Express reported citing Crisil Research.
Further, the research note warned of zero GDP growth if the lockdown is extended in India. “GDP growth may go towards 0 in 2020-21 if lockdown is extended. There will be four per cent permanent loss to GDP, and the economy is unlikely to recover for the next three years,” noted DK Joshi, Chief Economist at Crisil. Joshi noted that this is worse than the impact of the Global Financial Crisis of 2008. India was able to close down on the GDP gap substantially between FY09 and FY11.
However, India can close the gap by FY24 if the GDP was to grow at an average of 8.5 per cent over the next three years. However, this is a feat that has never been achieved by India, Crisil cautioned.
Crisil also pointed out that for any such recovery to happen, the fiscal response from the government has to be much more significant than what is right now. Terming the current Rs 1.7 lakh crore fiscal stimulus "inadequate", Joshi said that fiscal measures could end up requiring about Rs 3.5 lakh crore in funds. He added that the fiscal policy will need to be flexible as well as responsive and must consider top-up welfare measures to address household income disruptions of the vulnerable - in cash and kind. The policy must also provide more support for businesses, particularly small and medium enterprises (SMEs) via direct support and guarantees.
“We assume first-wave containment by end of the second quarter, complicated transition, and medical resolution mid-2021. Policies are a bridge to the (eventual) recovery,” The Hindu BusinessLine quoted Joshi as saying.
Crisil on Monday nearly halved its GDP forecast for India to 1.8 per cent for 2020-21 while projecting total losses of Rs 10 lakh crore or Rs 7,000 per person due to "disastrous" lockdowns to control COVID-19 pandemic. The agency, which blamed the government response to the crisis to be measured and asked it to drastically up the support, had a GDP growth estimate of 6 per cent for FY2021, which was last revised to 3.5 per cent in late March.
Another rating agency India Ratings and Research (Ind-Ra) has also revised the FY2021 economic growth forecast for the country further down to 1.9 per cent, the lowest in the last 29 years.