India Ratings cuts economic growth forecast for India to 3.6 per cent

MUMBAI: Domestic credit rating agency India Ratings (Ind-Ra) on Monday cut its FY21 growth forecast to 3.6 per cent amid coronavirus-related worries. It has assumed that a full or partial lockdown will continue till end of April and economic activities will be gradually restored only after May.

The report comes amid a crippling impact on economic activity due to the three-week lockdown till April 14 which is expected to only aggravate the difficulties around growth that were existing before the pandemic. Some watchers are also estimating for a contraction of the economy in the June quarter.

Ind-Ra said it expects India to clock a 2.3 per cent growth for the June quarter, down from its expectation of a 4.7 per cent gross domestic product (GDP) expansion in March quarter.

The agency said the initial and visible impact of the spread of the COVID-19 pandemic on the economy has been the disruption in the production of select manufacturing sectors due to the breakdown of supply chain, near-collapse of the tourism, hospitality and aviation sectors and a rise in the work load of the healthcare sector.

Small businesses have begun to witness cash flow disruptions.

However, some of the services sectors such as financial services, information technology and IT-enabled services have greater flexibility in operations and they have quickly readjusted and/or are readjusting their operations by allowing employees to work from home, it said.

A changed outlook of investors has led to a huge outflow of capital and the rupee has come under intense pressure, it said, pointing that wealth erosion would impact the consumption levels.

Additionally, disruption in harvesting the maturing Rabi or winter crop and inability of agricultural markets to timely procure them could be a blow to the farmers’ income and rural demand, it warned.

Stopping of construction activities will accelerate the problems of the real estate sector which is still struggling to access funding in the middle of a meltdown in the non-banking financial company (NBFC) and banking sectors, it said, pointing out that this sector is the highest employment generator after agriculture.

Apart from this, the closure of non-essential commercial establishment and multiplexes will have a ripple effect on many sectors, and impact demand for consumer durables, entertainment, sports, wholesale trade, transport, tourism and hospitality.

Growth for the first half of next fiscal will come at 2.8 per cent versus the 5.3 per cent in the year-ago period and recover up to 4.3 per cent in the second half as against 4.2 per cent estimated for FY20, it said.

The COVID-19 outbreak also presents with some opportunities for India, including a possible shift in manufacturing activities away from China as a risk aversion strategy, it noted.

The disruption in supply chain especially in sectors such as automobiles, pharmaceuticals, electronics and chemical products could be an incentive for Indian manufacturing sector to become part of the supply chain, it said, adding that this will require policy support.

Another positive for India would be the low crude prices, it acknowledged.

The government may announce more measures in the coming days/weeks to mitigate the pains and concerns of the other segments/ sectors of the society/economy, it said, pointing out that the fiscal space available is low at present. AA ANS ANS

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