Economy to take further hit after likely 5% contraction, 10% permanent GDP loss if these risks materialise

Expected GDP contraction and risk averseness among lenders are likely to keep credit growth subdued.

While India’s GDP is likely to contract by 5 per cent along with a 10 per cent permanent loss to it, as per the ratings agency Crisil, there would be further downside to the impact if three key risks materialise, according to Ashu Suyash, MD and CEO, Crisil. First, if the global GDP falls beyond the 2.4 per cent decline projected by S&P Global for 2020. Second, if coronavirus cases see a second wave adding to the uncertainty and stringency of measures to contain the virus; and third, if the agriculture sector is impacted due to the lack or excess of rains, Suyash told The Indian Express.

The agency in its GDP growth outlook report for FY21 said that a catch-up to the pre-crisis trend level of GDP will not be possible in the next three fiscals despite policy support. Moreover, to catch-up would require average GDP growth to surge to 11 per cent over the next three fiscals, something that has never happened before. The economic package announced by PM Modi last month is estimated to represent a booster shot worth Rs 11 lakh crore, around 65 per cent in the form of liquidity and credit support.

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“However, with a large part of the economic activity in ‘Red Zones’ – in our estimate, over 40 per cent – the uphill climb will be far from smooth. We, therefore, believe that sans strong fiscal stimulus – which we don’t foresee – recovery is unlikely to be a V-shaped one,” said Suyash. Also, expected GDP contraction and risk averseness among lenders are likely to keep credit growth subdued this financial year despite the repo rate cut by the Reserve Bank of India, she added.

RBI Governor Shaktikanta last month had announced the repo rate cut by 0.4 per cent to 4 per cent along with the reverse repo rate that was reduced to 3.35 per cent. The moratorium on term loans was further extended for three months from June 1 to August 31.

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