India Ratings Cuts 2020-21 GDP Growth Forecast To 1.9%, Lowest In 29 Years

India Ratings and Research on Monday revised its economic growth forecast for the current financial year to 1.9 per cent, the lowest in the last 29 years. The ratings agency cited the COVID-19 pandemic and the subsequent lockdown as reasons behind the move. In a report published on March 30, India Ratings had pegged the country's economic growth at 3.6 per cent. The economy had registered a GDP growth of 1.1 per cent in financial year 1991-92, it said. 

India Ratings said its growth projection is based on the assumption that the partial lockdown will continue till mid-May 2020.

According to India Ratings, "GDP (growth) may come back to the fourth quarter of 2019-20 fiscal level only by the third quarter (October-December) of current 2020-21 fiscal anticipating resumption of normal economic activities during second quarter (July-September) of 2020-21 and festive demand during third quarter of current fiscal (October-December)."

The rating agency, however, added that if the lockdown continues beyond mid-May 2020, and a gradual recovery takes root only from June-end, GDP may contract 2.1 per cent - the worst in last 41 years. If that happens, it will be only the sixth instance of contraction since fiscal year 1957-58.

According to the agency, the country's GDP contracted 0.4 per cent in 1957-58, 2.6 per cent in 1965-66, 0.1 per cent in 1966-67, 0.6 per cent in 1972-73, and 5.2 per cent in 1979-80.

For fiscal year 2020-21, the credit ratings agency expects retail inflation at 3.6 per cent.

It said that on the fiscal front, the dip in tax or 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 Ind-Ra expects the fiscal deficit of the union government to escalate to 4.4 per cent per cent of GDP in 2020-21 fiscal (FY21 Budget Estimate: 3.5 per cent of GDP) and a stimulus package of Rs 4 trillion (Rs 4 lakh crore) would push it to 6.0 per cent of GDP," it said.