India's fourth recession since Independence, first since liberalisation and perhaps the worst to date, is here, warned CRISIL. On Tuesday, the agency has forecasted India's GDP growth to fall off a cliff and contract 5 per cent in the financial year 2021, because of the COVID-19 pandemic. Earlier, on April 28, CRISIL had slashed its GDP growth prediction for India to 1.8 per cent from 3.5 per cent. The agency said that economic conditions have only gone downhill in last one month.
In a report titled "Minus Five", CRISIL predicted that non-agricultural GDP will contract 6 per cent, while agriculture could cushion the blow by growing at 2.5 per cent.
In the past 69 years, as per available data, India has seen recession only thrice 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, it said.
"The recession staring at us today is different. For one, 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," CRISIL said.
CRISIL opined that it is not possible for India to return to its pre-pandemic growth levels at least for the next three fiscals despite policy support. It estimated that under the base case scenario, India will suffer at least a 10 per cent permanent loss to real GDP, assuming an average growth rate of about 7 per cent between fiscals 2022 and 2024. To be able to catch up to the pre-crisis level of GDP growth, India would require average GDP growth of 11 per cent over the next three fiscals, "something that has never happened before," CRISIL said.
The agency warned that the first quarter of this fiscal (April-June period) will be the worst affected and suffer a staggering 25 per cent contraction. Despite the lockdown easing in the third and fourth phases, the negative impact on GDP is expected to massively outweigh the benefits from mild fiscal support and low crude oil prices, especially in the April-June quarter, it said.
"Not only will the first quarter be a washout for the non-agricultural economy, services such as education, and travel and tourism among others, could continue to see a big hit in the quarters to come. Jobs and incomes will see extended losses as these sectors are large employers," CRISIL said.
The government has extended the lockdown thrice, now scheduled to end on May 31, to deal with the rising number of cases, curtailing economic activity severely. The agency said that June is unlikely to see major relaxations as the COVID-19 affliction curve is yet to flatten in India. Latest studies by the Public Health Foundation of India and the World Health Organisation (WHO) suggest the pandemic spread could peak by mid-July. Earlier reports by other agencies had foreseen the apex in May. "This implies that even if the nationwide lockdown is lifted after May 31, states with high and rising COVID-19 cases could continue with restrictions, which will be a drag on the economy," said CRISIL.
The agency believes successive lockdowns have a non-linear and multiplicative effect on the economy - a two-month lockdown will be more than twice as debilitating as a one-month imposition, as buffers keep eroding. Partial relaxations continue to be a hindrance to supply chains, transportation and logistics. Hence, unless the entire supply chain is unlocked, the impact of improved economic activity will be subdued, it said.