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Effects of Coronavirus Pandemic on Indian Economy: What Ratings Agencies Have to Say

Professor of Financial Economics and Part-time Value Investor, Transfin.
Mar 31, 2020 11:40 AM 3 min read
Editorial

The COVID-19 crisis has struck Indian shores, and the Government has responded by shutting down the entire country for 21 days to discourage the spread of the deadly virus. To preserve financial stability and support economic growth, the Government has announced a $19.6bn relief package and the RBI pursued a steep rate cut and a slew of other unconventional measures.

 

But will these measures offset the implications of a long nationwide lockdown and a pandemic that threatens to wreck havoc on India’s fragile healthcare system? Ratings agencies – both foreign and domestic – are unanimous in their assertion that GDP growth will invariably take a hit and the economic fallout will spill over into FY21, which begins tomorrow (April 1st). The outlook is similar for the world economy which, according to the IMF and the UN, has already entered a recession or is going to this year.

 

It doesn’t take rocket science to see why COVID-19 spells disaster for the Indian economy. Even before the virus struck, GDP growth had hit a decadal low, slowdowns had plagues most mainstream industries, and banks were struggling through a brutal bad loans crisis. COVID-19 added to the problems.

 

How painful will the COVID-19 hit be?

Ratings agencies have some forecasts. Listed below are forecasts by some of the major ones (these are figures as of March 31st 2020; because of the evolving situation, numbers are being constantly revised, hence they may change).

 

Moody’s Investors Service slashed its growth projection for India for the current calendar year from 5.3% to 2.5%.

 

Standard & Poor’s cut its FY21 growth forecast for India from 6.5% to 3.5%. Numbers for FY22 were also cut, to 6.9% from 7%.

 

Fitch Ratings cut growth predictions for financial year 2021 from 5.1% to 4.6%.

 

Nomura has some particularly dire predictions for the Indian economy. It has cut the country’s Y-o-Y growth forecast for 2020 from 4.5% to -0.5%. “We now expect GDP growth to slide from 4.7% Y-o-Y in Q4 2019 to 3.1% in Q1 and plunge to -6.1% in Q2, when both domestic and external demand will weaken,” Nomura has predicted.

 

Domestic ratings agency Crisil slashed its base case FY21 GDP growth forecast from 5.7% to 3.5%. Saying the current crisis is “bigger in scale than the global financial crisis of 2008”, Crisil warned that there are further downside risks if the pandemic is not contained by June this year.

 

Mumbai-based CARE Ratings said Q4 GDP growth could plummet to 1.5-2.5% instead of the 4.7% it had forecast earlier for this period. If the lockdown ends on April 14th and the economy gets back on track, GDP growth could be 3%, else it could fall to 1.5-2%, CARE said.

 

The United Nations Conference on Trade and Development (UNCTAD) posits that the world economy will enter a recession this year, and its repercussions on the developing world could be more adverse than the Great Recession. The UN body said China and India are two countries that could avoid a recession – although it did not go into why they would be exceptions.

 

As per the Economist Intelligence Unit, all but three G20 countries are slated to enter recession this year. These three outliers are expected to be Indonesia, China and India, which could grow at the fastest pace in the group with GDP growth forecast at 2.1% (slashed from the previous 6%).

FIN.

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