Categories: Business

Indian economy to shrink 5.3 percent in FY21, India ratings forecast

Photo: GOOGLE

India Ratings sees a historic slump in growth due to coronavirus

new Delhi. India Ratings and Research estimates the Indian economy to shrink by 5.3 percent in the current financial year 2020-21. This will be the lowest growth rate of gross domestic product (GDP) in the country's history. The rating agency said on Wednesday that this would be the sixth opportunity for the economy to contract. The rating agency's report says that the Kovid-19 epidemic has had a huge impact on production speed and levels. The supply chain and business chain are broken. Activities in the aviation, hotel and hospitality sectors have come to a complete standstill (although some activities are now taking place). As such, economic activities are not expected to be normal in the entire financial year 2020-21.

The report states that the economy will decline during the entire financial year, the economy will also come down during each quarter. However, the agency believes that the economy will be back on track in the next financial year ie 2021-22 and will register a growth of five to six percent. The report says that the economy will register growth in the next financial year due to the base effect and normalcy of the domestic and global economy.

India Ratings said that India's gross domestic product (GDP) will decline by 5.3 percent in 2020-21. The report says that this will be the lowest GDP growth rate in the country's history. India's GDP figures are available from 1950-51. Apart from this, this will be the sixth occasion when the economy will decline. Earlier, the Indian economy had declined in the financial years 1957–58, 1965–66, 1966–67, 1972–73 and 1979–80. Earlier in the financial year 1979-80, the rate of economic growth had gone to the lowest level. Then the country's economic growth rate was 5.2 percent below zero.

On 12 May 2020, the government announced an economic package of Rs 20.97 lakh crore, or 10 percent of GDP, to deal with the adverse effects of Kovid-19. However, according to India Ratings calculation, the direct financial impact of this package is only Rs 2.145 lakh crore or 1.1 percent of GDP. It does not include monetary measures and the current proposal of the general budget. The report said that the debt and cash management measures taken in the economic package and the Reserve Bank's previously announced measures will help resolve the supply side issues of the economy.

The report says that there was a demand side problem in the Indian economy before the lockdown related to Kovid-19. Consumer demand has been further affected by the lockdown and its impact on the economy and livelihood.

This post was published on June 24, 2020 4:02 pm

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