Moody's Investors Service says in a new report that economic damage as a result of India's coronavirus lockdown will likely be extensive and reflect the country's inherent economic vulnerability and fiscal constraints, with wide-ranging effects on both public and private sectors. The report titled "Coronavirus – India: Lockdown compounds economic challenges as credit risks rise in many sectors” was released today.
"We expect the economic fallout from the coronavirus outbreak to weigh on already fragile household consumption which, coupled with sluggish business activity, will result in a sharp decline in India's economic growth in fiscal 2020-21," says Deborah Tan, a Moody's Assistant Vice President and Analyst.
Even before the coronavirus outbreak, the economy had already been growing at its slowest pace in six years. Adding the impact from the outbreak, Moody's now expects India's real GDP to contract in the fiscal year ending March 2021 (fiscal 2020-21) compared with an earlier projection of zero growth. The economy is also expected to recover somewhat more strongly in fiscal 2021-22 relative to an earlier forecast of 6.6% growth.
"Moreover, we expect the economic shock from the coronavirus to result in significant slippage from the central government's budgeted deficit target for fiscal 2020-21," adds Tan.
While the announced stimulus will bring a degree of relief to rural households and micro, small and medium-sized enterprises (MSMEs), the measures are unlikely to offset lower activity resulting from the extended lockdown.
Banks and finance companies accordingly will see a broad-based deterioration in asset quality, while finance companies and smaller private banks will also face funding and liquidity issues.
Among corporates, the auto, oil & gas and mining sectors will bear the brunt of the downturn, given their sensitivity to consumer demand, sentiment and supply chain disruptions.
The economic slowdown will also hit the performance of commercial vehicle and MSME loans, with the effects more significant if the outbreak spreads and suspension of business activity is prolonged.
