Amid the nationwide lockdown in the wake of coronavirus outbreak, Confederation of Indian Industries (CII) on Thursday said that India's economy may grow at a slower pace, ranging from a contraction of 0.9 per cent to a growth of 1.5 per cent, in the financial year 2020-21.
The GDP growth estimate has been derived on the basis of the estimated impact of COVID-19 lockdown across different sectors, the industry body said. The growth estimate has been derived under three different scenarios, optimistic, base and downside risk.
"In the base case, GDP growth is estimated at a negligible level of 0.6 per cent while in the optimistic scenario it is projected at 1.5 per cent. In the downside risk scenario, where the pandemic outbreak gets prolonged, thereby restricting full restoration of economic activity for an extended period, the GDP growth for FY21 could possibly contract by as much as minus 0.9 per cent," CII said in its latest report 'A plan for economic recovery'.
In the optimistic scenario, the agency expects that economic activity will start recovering as soon as the lockdown is removed and will get back to normal in a phased manner within a short span of time.
In case of base scenario, CII assumes that that economic activity will resume post the lockdown period but will take time to reach normal capacity levels, as restrictions on people and goods will continue in the identified hot-spot regions even beyond the lockdown phase. "This will lead to disruption in supply chains, slow pick-up in investment activity, labour shortages in the short-run and muted consumption demand on account of reduced household income," CII said.
The downside risk scenario assumes that the restrictions on free movement of people and goods in hot-spot regions gets extended well beyond the lockdown phase as the COVID-19 outbreak extends and lingers on for longer. Further, new regions are identified as 'hot-spots' leading to increase in number of hot-spot regions. In this scenario, consumption demand will contract sharply, the investment activities will crash, and the government will be forced to increase fiscal spending to sustain the economy and to prevent any humanitarian crisis.
As per the CII report, economic activity has slowed down significantly across most sectors. In the manufacturing sector, only food processing, pharmaceuticals and medical equipment are operational, while construction and mining activities have halted completely. Within services, majority of trade, transportation and hospitality remains closed, while financial, IT and government services remain partially operational.
The agency has suggested measures for the short and medium-term to deal with COVID-19 crisis. It said that immediate stimulus is required urgently to overcome the deep distress in the economy, while a medium-term plan is needed to be implemented over two years. This would include not only immediate restructuring requirements to support the economy from the damages inflicted by coronavirus but also prepare for a more competitive economic landscape over the next decade, CII said.