Ind-Ra Cuts India’s FY21 GDP growth to lowest in 29 years

Representational Pic

New Delhi- India Ratings and Research (Ind-Ra) on Monday revised its FY21 economic growth forecast for the country further down to 1.9 per cent, lowest in the last 29 years, citing the COVID-19 pandemic and its impact on economy.

The rating agency said the revised number is based on the assumption that the partial lockdown will continue till mid-May. It, however, sees GDP growth to slip further to negative 2.1 per cent if the lockdown continues beyond mid-May. “We have revised our FY21 gross domestic product (GDP) growth further down to 1.9 per cent from our forecast of 3.6 per cent published on March 30, 2020,” its principal economist and director public finance Sunil Kumar Sinha said in a report.

The country’s economy had grown by 1.1 per cent in FY92. “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,” Sinha said, adding it will be only the sixth instance of contraction since FY52.

Many global and domestic research agencies have also cut their FY21 growth forecast for the country amid the COVID-19 pandemic and its impact on economy. The agency said the Reserve Bank of India, on March 27, had announced reduction in repo rate by 75 basis points, cut in the cash reserve ratio by 100 bp to 3 per cent and a targeted long term repo operations (TLTRO) worth Rs 1 lakh crore, focused on easing the tight monetary conditions building up in the economy. However, the financial market reacted otherwise.

Sinha said due to risk aversion, deployment of TLTRO funds so far has largely been into the bonds issued by public sector entities and large corporates.

Given the uncertainty surrounding the COVID-19 pandemic and its impact on economy, he said the risk aversion is likely to continue and funds available under TLTRO 2.0 may also not flow to the targeted segment–investment-grade bonds, commercial papers, and non-convertible debentures of NBFCs, with at least 50 per cent of the total amount going to small and mid-sized NBFCs and microfinance institutions (MFIs).

“This risk aversion across financial sector participants coupled with slow banking credit growth will have a second round impact on the GDP growth,” he said. The rating agency further said the dip in tax/non tax revenue due to the lockdown/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 we expect the fiscal deficit of the union government to escalate to 4.4 per cent of GDP in FY21 and a stimulus package of Rs 4 lakh crore would push it to 6 per cent of GDP,” Sinha said. The budget estimate of fiscal deficit for FY21 is 3.5 per cent of GDP.

The agency expects retail inflation for FY21 at 3.6 per cent.


Be Part of Quality Journalism

Quality journalism takes a lot of time, money and hard work to produce and despite all the hardships we still do it. Our reporters and editors are working overtime in Kashmir and beyond to cover what you care about, break big stories, and expose injustices that can change lives. Today more people are reading Kashmir Observer than ever, but only a handful are paying while advertising revenues are falling fast.



Press Trust of India

Leave a Reply

Your email address will not be published.