India Ratings cuts GDP growth forecast to 1.9%

New Delhi: Ratings agency India Ratings and Research has revised its FY21 gross domestic product (GDP) growth further down to 1.9 per cent from its earlier forecast of 3.6 per cent. According to the ratings agency, this will be the lowest GDP growth in the last 29 years and is based on the assumption that the partial lockdown will continue till mid-May 2020.

"Ind-Ra's estimate suggests that GDP may come back to the 4QFY20 level only by 3QFY21, anticipating resumption of normal economic activities during 2QFY21 and festive demand during 3QFY21," the ratings agency said in a statement on Monday. "However, if the lockdown continues beyond mid May 2020 and a gradual recovery takes root only from end-June 2020, GDP growth may slip further to negative 2.1 per cent, lowest in the last 41 years and only the sixth instance of contraction since FY52.

" Besides, the ratings agency said that the proactive intervention of the Reserve Bank of India (RBI) notwithstanding the spillover impact of Covid-19 has percolated into the financial markets as well, choking the credit channels and raising the risk aversion.

As per the statement, retail inflation for FY21 has been estimated at 3.6 per cent. On the fiscal front, the ratings agency said that a dip in tax or non-tax revenue due to the lockdown or growth slowdown coupled with the need to provide fiscal stimulus will destabilise the fiscal arithmetic of both union and state governments.

"Even without any significant fiscal stimulus Ind-Ra expects the fiscal deficit of the union government to escalate to 4.4 percent of GDP in FY21 and a stimulus package of Rs 4 trillion would push it to 6 per cent of GDP," the statement said.