COVID-19 Impact: India facing worst recession since Independence, says CRISIL

New Delhi: India’s fourth recession since Independence, the first since liberalization and perhaps the worst to date, is here, CRISIL said on Tuesday as it predicted the economy to shrink by 5 percent in the current fiscal because of coronavirus lockdown.

“The first quarter (April to June 2020) will suffer a staggering 25 percent contraction. About 10 percent of gross domestic product (GDP) in real terms could be permanently lost. So going back to the growth rates seen before the pandemic is unlikely in the next three fiscals,” it said in its assessment of India’s GDP.

In the past 69 years, India has seen a recession only thrice as per available data – in fiscals 1958, 1966 and 1980. The reason was the same each time – a monsoon shock that hit agriculture, then a sizeable part of the economy.

CRISIL said that the recession in the current fiscal (April 2020 to March 2021) is different as agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon. The coronavirus lockdown, first imposed on March 25 and extended thrice till May 31, has curtailed economic activity severely. “The first quarter of this fiscal will be the worst affected,” it said.

“Not only will the first quarter be a washout for the non-agricultural economy, services such as education, and travel and tourism among others could continue to see a big hit in the quarters to come. Jobs and incomes will see extended losses as these sectors are large employers,” it said.

It also saw economic activity in states with high COVID-19 cases suffering prolonged disruption as restrictions could continue longer. Stating that the economic costs now beginning to show up in the hard numbers are far worse than initial expectations, it said that industrial production for March fell by over 16 percent, exports contracted 60.3 percent in April, and new telecom subscribers declined 35 percent, while railway freight movement plunged 35 percent on-year.

“Indeed, given one of the most stringent lockdowns in the world, April could well be the worst-performing month for India this fiscal,” it said. Counting lockdown 4.0, Indians have had 68 days of confinement.

S&P Global estimates that one month of lockdown shaves 3 percent off annual GDP on average across Asia-Pacific, it said adding since India’s lockdown has been the most stringent in Asia, the impact on economic growth will be correspondingly larger.

“CRISIL forecasts India’s GDP growth to fall off a cliff and contract 5 percent in fiscal 2021. Earlier, on 28 April, we had slashed our prediction to 1.8 percent growth from 3.5 percent growth. Things have only gone downhill since. While we expect non-agricultural GDP to contract 6 percent, agriculture could cushion the blow by growing at 2.5 percent,” the report said.

On the Rs 20.9 lakh crore economic relief package announced by the government to support the economy, CRISIL said the package has some short-term measures to cushion the economy but sets its sights majorly on reforms, most of which will have payoffs only over the medium-term.

“We estimate the fiscal cost of this package at 1.2 percent of GDP, which is lower than what we had assumed in our earlier estimate,” it said.