scorecardresearch
Follow Us:
Thursday, June 04, 2020

Covid-19 to cause 4% permanent loss to India’s GDP: Crisil

According to Crisil Research, India needs to provide a much higher fiscal stimulus to recover lost ground due to the coronavirus pandemic.

Written by Udit Misra | New Delhi | Updated: April 30, 2020 6:31:10 pm
india gdp, gdp loss due to coronavirus, crisil, crisil rating on india gdp, coronavirus impact on economy, india economic slowdown, coronavirus india news Crisil said that even when the economic recovery happens, the shape and time of recovery will vary across sectors. (Representational image)

According to Crisil Research, the ongoing economic disruption due to Covid-19 is likely to result in a permanent loss of 4% of gross domestic product for India. In other words, as time goes by, while the economy is likely to recover there will be a certain amount of economic activity that will not be recovered and this is estimated to be 4% of GDP.

india gdp, gdp loss due to coronavirus, crisil, crisil rating on india gdp, coronavirus impact on economy, india economic slowdown, coronavirus india news

As chart 1 shows, the black line is the Pre-Covid 19 trend of growth. The red line on the same chart shows how this loss is likely to happen. As the gap between the two lines shows, the knock to economic growth in FY21 will sustain even when the economy recovers.

Read| Lockdown, global trade dislocation to hit Indian economy: RBI report

Dharmakirti Joshi, Chief Economist at Crisil, said this is worse than the impact of the Global Financial Crisis of 2008. As chart 2 shows, India was able to close down on the GDP gap substantially between FY09 and FY11.

india gdp, gdp loss due to coronavirus, crisil, crisil rating on india gdp, coronavirus impact on economy, india economic slowdown, coronavirus india news

Under the base case scenario for Covid-19, this is unlikely to happen. Crisil also provided caveats that most assumption for the base case scenario have risk titled towards the downside; in other words, things are more likely to go down from the base scenario.

However, there is a way in which India can close the gap. As chart 3 shows, India can recover all the lost ground by FY24 if the GDP was to grow at an average of 8.5% over the next three years. However, this is a feat that has never been achieved by India, they cautioned.

india gdp, gdp loss due to coronavirus, crisil, crisil rating on india gdp, coronavirus impact on economy, india economic slowdown, coronavirus india news

Crisil also pointed out that for any such recovery to happen, the fiscal response from the government has to be much more significant than what is right now. They termed the current fiscal stimulus of Rs 1.7 lakh crore — announced by the government 36 hours after the start of the nationwide lockdown on March 25 —to be “inadequate”. Joshi clarified that while it is difficult to assess the level of stimulus required at present, the government would have to step up as when the situations demand. For the moment, however, he said that at Rs 3.5 lakh crore stimulus is required at the very least — that number is inclusive of the already announced stimulus of Rs 1.7 lakh crore.

Even when the recovery happens, the shape and time of recovery will vary across sectors. As such, some like FMCG (fast moving consumer goods like a bottle of cola) and Telecom will see only a mild impact and quick recovery, while others like passenger vehicles will see a sharp decline and moderate recovery. There will also be sectors that will see sharp adverse impact and will take a long time to recover; these include sectors such as airlines, hotels and media.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Business News, download Indian Express App.

Advertisement
Advertisement
Advertisement
Advertisement