File photo: IANS

New Delhi: The Indian economy will contract by 9% in 2020-21 as the coronavirus infections are yet to peak and the government is not providing adequate direct fiscal support, ratings agency Crisil said on Thursday.

In May, Crisil had estimated the economy to contract by 5%. The latest projection comes days after official data for the June quarter showed a contraction of 23.9% in the economy.

 

Crisil said the 9% contraction will be the highest since the 1950s.

According to the ratings agency, with the pandemic’s peak not yet in sight and the government not providing adequate direct fiscal support, the downside risks to its earlier forecast have materialised.

“If the pandemic were to peak out in September-October, GDP growth could move into mildly positive territory towards the end of this fiscal,” the agency said in a report.

“Even in that event, manufacturing is expected to revive faster compared with services. But the risks to our outlook remain tilted to the downside till such time a vaccine is found and mass produced.”

As per the report, Crisil expects a permanent loss of 13 per cent of real GDP over the medium term.

“In nominal terms, this amounts to Rs 30 lakh crore. This is much higher than a 3 per cent permanent hit to GDP in Asia-Pacific economies (ex-China and India) over the medium run estimated by S&P Global in June 1,” the report said.

“Catch-up with the pre-pandemic trend value of real GDP would require average real GDP growth to surge to 13 per cent annually for the next three fiscals – a feat never before accomplished by India.”

Besides, the report said that high-frequency indicators, both conventional and unconventional, correlate reasonably well with GDP estimates.

“In the April-June quarter, GDP contracted 23.9 per cent, but that did not come as a surprise as these indicators were indicating a deep hit. But thereafter, till August end, they showed recovery from April levels, yet remained below pre-pandemic levels, implying the economic contraction continued, albeit less severely than in the first quarter,” the report said.

“Hence, we expect GDP to contract 12 per cent on-year in the second quarter of fiscal 2021.”

India has overtaken Brazil as the second worst hit country with over 42 lakh coronavirus cases.

Even as many analysts have been pitching for a sharp rebound or a v-shaped recovery, Crisil said the pandemic will leave a “permanent scar”.



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