India's fourth recession since independence, the first since liberalisation and perhaps the worst to date, is here, CRISIL said on Tuesday as it predicted the economy to shrink by 5 per cent in the current fiscal because of coronavirus lockdown.
"The first quarter (April to June 2020) will suffer a staggering 25 per cent contraction," it said in its assessment of India's GDP.
"About 10% of gross domestic product (GDP) in real terms could be permanently lost. So going back to the growth rates seen before the pandemic is unlikely in the next three fiscals." In the past 69 years, India has seen a recession only thrice - as per available data - in fiscals 1958, 1966 and 1980. The reason was the same each time - a monsoon shock that hit agriculture, then a sizeable part of the economy.
Crisil said the recession in the current fiscal (April 2020 to March 2021) is different as agriculture could soften the blow this time by growing near its trend rate, assuming a normal monsoon.
The coronavirus lockdown, first imposed on March 25 and extended thrice till May 31, has curtailed economic activity severely.
"The first quarter of this fiscal will be the worst affected," it said. "Not only will the first quarter be a washout for the non-agricultural economy, services such as education, and travel and tourism among others could continue to see a big hit in the quarters to come. Jobs and incomes will see extended losses as these sectors are large employers." It also saw economic activity in states with high COVID-19 cases suffering prolonged disruption as restrictions could continue longer.
Stating that the economic costs now beginning to show up in the hard numbers are far worse than initial expectations, it said industrial production for March fell by over 16 per cent, exports contracted 60.3 per cent in April, and new telecom subscribers declined 35 per cent, while railway freight movement plunged 35 per cent on-year.
"Indeed, given one of the most stringent lockdowns in the world, April could well be the worst-performing month for India this fiscal," it said.
Counting lockdown 4.0, Indians have had 68 days of confinement. S&P Global estimates that one month of lockdown shaves 3 per cent off annual GDP on average across Asia-Pacific, it said adding since India's lockdown has been the most stringent in Asia, the impact on economic growth will be correspondingly larger.
"CRISIL forecasts India's GDP growth to fall off a cliff and contract 5% in fiscal 2021," the report said.
"Earlier, on April 28, we had slashed our prediction to 1.8 per cent growth from 3.5 per cent growth. Things have only gone downhill since. While we expect non-agricultural GDP to contract 6 per cent, agriculture could cushion the blow by growing at 2.5 per cent." On the Rs 20.9 lakh crore economic relief package announced by the government to support the economy, Crisil said the package has some short-term measures to cushion the economy but sets its sights majorly on reforms, most of which will have payoffs only over the medium term.
"We estimate the fiscal cost of this package at 1.2 per cent of GDP, which is lower than what we had assumed in our earlier estimate," it said.