Lockdown impact: Economy likely to contract by 5% in FY21, says ICRA

Ratings agency ICRA on Wednesday predicted that India's economy is likely to witness a sharp contraction of 5 per cent during FY 2020-21, despite the massive stimulus given under the Self-Reliant India programme.

Earlier, ICRA had predicted a contraction of around 1-2 per cent.

Recently, the Centre gave an immediate fiscal support under the ‘Atma Nirbhar Bharat Abhiyan' estimated at a modest 10 per cent of the GDP with a total outlay of Rs 20 lakh crore.

"With the further extension of the lockdown, and the expectation of substantial delays in getting the full supply chain operational, especially given the likelihood of enduring labour mismatches following the return of migrant workers to their home states, we now anticipate the GDP contraction in Q1 FY2021 to be deeper," ICRA's Principal Economist Aditi Nayar said in a report.

"... and the subsequent economic recovery in India to be shallower and more delayed than our earlier assessment."

On April 7, the ratings agency predicted that India's economy is likely to witness a sharp contraction of 4.5 per cent during Q4 FY2020 and is expected to gradually recover to post a GDP growth of just 2 per cent in FY2021.

ICRA has sharply cut its forecast for Indian GDP growth in FY 2021, post the Covid-19 outbreak.

That time, ICRA had said that it expects the ripple effect of coronavirus to impact India Inc on five major counts of domestic demand slowdown due to regulatory restrictions, lockdown and fear of contagion will impact certain sectors over the near term.

Accordingly, purchasing power erosion due to job losses or pay cuts and trickle-down effect of demand deferral will have a longer-lasting impact on some other sectors, especially where demand is discretionary in nature.

Additionally, it said that the high impact sectors in terms of risks due to Covid-19 are aviation, hotels, restaurants and tourism, auto dealerships, ceramic tiles, gems and jewellery, retail, shipping, ports and port services, seafood and poultry; and microfinance institutions.