India Ratings and Research (Ind-Ra),
a Fitch group company further reduced its estimate for India's gross domestic
product (GDP) growth rate to 1.9 per cent for 2020-21. Earlier in the year
1991-92, India's GDP growth was recorded at 1.1 per cent.
In a note released on Monday, the
agency changed its estimate of 3.6 per cent GDP growth announced on March 30 to
1.9 per cent. The agency's chief economist Sunil Kumar Sinha said, "This an estimate is based on the assumption that the partial lockdown will continue
till mid-May." The entire lockdown due to COVID19 is scheduled to end on 3
May. However, experts want it to continue in the hotspot for some more time.
The agency's estimates suggest that
GDP could return from the third quarter of the year 2021 (October – December 2020)
to the level of the fourth quarter of the year 2020 (January – March 2020), if
the second quarter of the year 2021 The resumption of normal economic
activities during (July – September) and the festive season begins during the
third of 2021. If the lockdown continues beyond mid-May and the gradual
recovery begins only from June 2020, GDP growth could slip to a negative 2.1 per cent, the lowest in the last 41 years and since FY 1951-52 This will be the
sixth chance of such a big fall. The agency's estimate is equivalent to the IMF
(1.9 per cent) and closer to the World Bank (1.5 to 2.8 per cent), but lower
than the ADB (4 per cent).
The agency further said that despite
the active intervention of the Reserve Bank of India (RBI), the impact of COVID19
has also infiltrated financial markets and strangled credit channels and
increased risk aversion costs. Sunil Kumar Sinha said, "There is no
liquidity deficit in the system. Since February 2020, RBI has flowed liquidity
and systemic liquidity surpluses of around 3.2 per cent of GDP, which is a
liquidity adjustment facility. ) Is reflected in net absorptions and the total
amount during the period of March 27-April 14 is 4.36 trillion rupees on
average.
Nevertheless, commercial papers of
repo rates and capital market instruments such as benchmark G-Sec, AAA
corporate bonds, NBFCs, which were either flat or declining since the beginning
of March 2020. But these started improving after March 13. This scope of reform
suddenly increased to 50-80bps on the next day of RBI monetary policy and has
remained so since. The reason for avoiding such risk is that the TLTRO
(Targeted Long-Term Repo Option) The fund has now largely been issued in bonds
issued by public sector entities and large corporate.
Given the epidemic and its impact on
the economy, India Ratings believes that risk aversion is likely to continue
and that funds available under TLTRO 2.0 are not in the targeted segment i.e.
investment-grade bonds, commercial papers, and non-convertible debentures of
NBFCs And the amount of which is going to be at least half going to small and
mid-sized NBFCs and microfinance institutions.
India Ratings retail inflation
estimate for FY 2021 is 3.6 per cent. Retail inflation topped the RBI's upper
limit of 6 per cent in December 2019, topped in January 2020 and peaked at 5.9 per cent in March 2020 due to declining prices of vegetables, fruits and
petroleum products.
On the fiscal front, the need to
provide fiscal stimuli such as lockdown, recession, declining tax and non-tax
revenue, such as the fact that the factories would spoil the fiscal arithmetic
of both the central and state governments. Without any significant fiscal
stimulus, the agency expects the fiscal deficit of the Center to rise to 4.4 per cent of GDP in FY21, compared to the budget estimate of 3.5 per cent.
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