Domestic rating agency Crisil said on Monday nearly halved its GDP forecast for India to 1.8 per cent for 2020-21 while projecting total losses of Rs 10 lakh crore or Rs 7,000 per person due to "disastrous" lockdowns to control COVID-19 pandemic.
The agency, which blamed the government response to the crisis to being measured and asked it to drastically up the support, had a GDP growth estimate of 6 per cent for FY2021, which was last revised to 3.5 per cent in late March.
Another rating agency India Ratings and Research (Ind-Ra) has also revised the FY2021 economic growth forecast for the country further down to 1.9 per cent, the lowest in the last 29 years.
The nation has been put under a 40-day lockdown in two phases till May 3 to check the spread of infections. Economists were quick to flag concerns on such a move that chills all activity, and some also expect a contraction in the economy in FY2021.
The government has responded with a Rs 1.70 lakh crore package, which was criticised for not being entirely new money, while the RBI has taken a slew of measures by cutting rates and also upping the liquidity supply.
"Lockdowns are showing a disastrous impact on the economy and could lead to a permanent loss of GDP, unemployment and poverty, despite relief packages," Crisil warned on Monday while revising down its growth estimates.
With the threat of infections still looming, it acknowledged that policymakers are grappling with a "dilemma" right now on whether to extend the lockdown beyond May 3 or extend it further which will entail economic costs.
There is also a worry of a burst out in infections if the social distancing norms are not followed, the agency said, adding that if the norms are followed strictly, there will be reverses on economic activity and infuse uncertainties on spending.
The economic growth forecasts are premised on a normal monsoon, sharp fall in oil prices lending a helping hand and the effect of pandemic subsiding in the first quarter of the fiscal year, it said.
The risk factors include a dip in global growth, restrictions continuing in India and a second wave of cases emerging up.
Inflation will cool down to 4.4 per cent by the end of the fiscal, the rupee will appreciate to Rs 73 to a dollar and the current account deficit for FY2021 will narrow to 0.2 per cent from the 1 per cent in FY2020, it said.
The agency said the Indian government is taking "measured steps and trying not to front-load its response", but needs to drastically step up its fiscal response.
"The quantum of fiscal support announced so far is low, and the coverage is quite poor," it said.
The shock to the economy will be both on the demand and supply side, it said, terming it as a "rare event".
Supply will be impacted due to factors like factory shutdowns, logistical bottlenecks in movement of goods, labour shortages and cash flow drying up, while the demand side challenges include cuts in consumer spending, debt to global demand, loss of incomes or unemployment and weaker sentiments, the agency said.
Elaborating on the labour market, it said casual labourers account for a fourth of the overall labour in India and will be the first ones to be hit through layoffs in sectors like construction, mining, manufacturing and transport.
Even in the category classified as "salaried", 38 per cent of people do not have a valid job contract, it said, warning that there can also be a permanent loss of job in some cases if the lockdown continues.
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