Mumbai: After the government announced graded relaxations in the lockdown, domestic rating agency Icra on Monday estimated that the country's GDP might contract by as much as 20 per cent in the June quarter and is expected to overcome some lost ground in the remainder of the year but still close 2020-21 down by up to 2 per cent.
The agency's earlier economic forecast was a range, according to which the GDP may either expand by 1 per cent or contract by 1 per cent in 2020-21.
After keeping the country under a 40-day lockdown to arrest the spread of coronavirus, the government extended the lockdown till May 17 with a slew of relaxations to the unaffected areas in order to kick-start economic activity.
"While the graded relaxations announced by the government will permit the resumption of economic activity, the relatively stringent norms in major urban centres will result in the pace of activity remaining constrained," the agency said.
It said there is a likelihood of mismatches in labour availability and sectors, such as manufacturing, construction, trade, hotels and transport, will drag down growth.
"Accordingly, we now expect the Indian GDP (gross domestic product) to contract by 16-20 per cent in Q1FY21 (first quarter of 2020-21), which implies that a full-year contraction of 1-2 per cent is inevitable," it said.
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A slew of watchers have been forecasting for a heavy impact on the already sagging growth -- India was supposed to grow at a decadal low in 2019-20 as per official estimates -- because of the COVID-19 pandemic that has chilled all activity.
The government has already announced a Rs 1.7-lakh crore package to fight the COVID-19 crisis, which many feel is not sufficient. Some analysts have also said that over half of the stimulus package was already included in Budget 2020-21 announcements and is not fresh money. Even as many watchers point to the limited financial space available, there are reports that the government is working on a new package.
The Reserve Bank of India (RBI) has cut the key policy rate (repo) by a steep 0.75 per cent and also taken a slew of unusual measures to make liquidity available for the needy sectors of the economy with a view to push growth. RBI Governor Shaktikanta Das has also said that meeting the 3.5 per cent fiscal deficit target will be challenging and the government may miss the budgeted target.
GDP to pick up in Q2 FY21 if industry overcomes lockdown impact soon: CII
India's economic growth is likely to pick up during second half of the current fiscal year (October to March) as the combined impact of COVID-19 crisis and subsequent lockdown is likely to linger in the first two quarters, CII President Vikram Kirloskar said.
He said cash liquidity has dried up for several small and medium enterprises which raises the prospect of huge job losses in coming months. Automobile sales have been zero in April. If the production starts in June, there could be a 30 to 35 per cent decline being reflected in the second quarter (July to September) as consumer demand may pick up in coming weeks, said Kirloskar.
"The dealerships need to open up. Our raw material comes from suppliers which are located in red zones. Supply chains need to be streamlined," he said.
However, agriculture and pharmaceuticals seem to be a good bet in these difficult times. Kirloskar called for a stimulus package totalling 3 per cent of the GDP to save small and medium enterprises, which form the backbone of Indian economy and provide employment to millions of workers.
(PTI and ANI Report)
