India's FY21 GDP Could Shrink As Much As 15%, Research Suggests

Five research houses have downgraded their previous predictions for the Indian economy for FY21 after first quarter GDP fell 23.9%

The Indian economy will contract anything from 9% to 14.8% in the current financial year (FY21), according to research put out by five agencies.

These estimates - by CRISIL, Goldman Sachs, Fitch, the State Bank of India's research desk and India Ratings - are comparatively more ominous numbers than what they had put out a few months ago.

While previously, these houses had estimated that the Indian economy would launch off a cliff into an economic contraction to be in single digits; these estimates now put the quantum of a potential contraction in double-digit territory for the first time.

In May, BOOM reported on how estimates from research houses predicted that India would enter its fourth recession.

These revisions follow a 23.9% decline in the Indian economy in the first quarter of the ongoing financial year (reported year-on-year), largely attributed to the nationwide lockdown imposed as a safeguard measure against the ongoing COVID-19 pandemic.

Also Read: India's GDP Shrinks -23.9% in Q1 In Worst Ever Decline

To put these numbers in perspective: till now, among the most dire predictions was given by HSBC India, who predicted a fall of 7.2%, and Goldman Sachs (GS), which has predicted a fall of 11.8% for the financial year. A prediction by the International Monetary Fund is at the lower end of the spectrum, putting India's fall this fiscal at 4.5%.

From the governmental front, two policymakers have given indications that India will be seeing negative growth this fiscal, stopping short of giving an estimate. On May 22, Governor of Reserve Bank of India, Shaktikanta Das, said that India's growth will be in negative territory this fiscal. During the GST [Goods and Services Tax] Council meeting on August 27, Finance Minister Nirmala Sitharaman said that the Indian economy would be negative, infamously attributing it to an 'Act of God'.

To mitigate this downturn, the Indian government launched an umbrella 'Aatmanirbhar Bharat Abhiyaan' package. While this was collectively valued near ₹21 lakh crores (or 10% of GDP), the true cost to the government was just a tenth of that.

Here's what you need to know about these fresh estimates.

1. Goldman Sachs

GS has slashed forecasts for India's GDP growth for both calendar year 2020 and FY21 (April 2020 - March 2021) in a research note.

For FY21, GS now forecasts an economic contraction of 14.8%, down from a previously estimated 11.8%. For calendar year 2020, the shrinkage will be 11.1%, down from a previous 9.6%.

2. Fitch

Fitch has estimated that India will contract 10.5% this fiscal, a cut of 5.5 percentage points from a May estimate of 5%. in its Global Economic Outlook released this month. They attributed it to a larger than expected fall in Q1, as COVID-19 cases keep surging.

"GDP shrank a staggering 24% yoy – almost double our expectation embedded in the June GEO – amid the imposition of one of the most stringent global nationwide lockdowns", it says, adding that India will see growth of 11% next fiscal, and will not reach pre-COVID levels until Q1 in 2022.

Their report can be found here.


CRISIL, a credit-rating agency, estimates that India will fall 9% this fiscal in a report titled 'Minus Nine Now'. This figure has been revised downwards from a previous estimate of a contraction of 5%, which they had put out in May (in a report incidentally titled 'Minus Five').

This downward revision has been attributing to the COVID-19 caseload in India not yet peaking, the government providing insufficient fiscal support and the concentration of cases in states like Tamil Nadu, Maharashtra, Karnataka and Andhra Pradesh accounting to more than a third of India's GDP. Agriculture, however, is expected to be a bright spot, and grow 2.5% due to healthy monsoons.

Over the medium term, CRISIL expects a 13% permanent loss in India's GDP. Predictions for the next quarter are at -12%. On a quantum of recovery, the report says, "Catch-up with the pre-pandemic trend value of real GDP would require average real GDP growth to surge to 13% annually for the next three fiscals – a feat never before accomplished by India", says the report.

CRISIL's report can be read here.

Also Read: Why Claims Of US, Canada GDP Falling More Than India Are Misleading

4. SBI Research

The State Bank of India's research desk estimates that India India will now contract 10.9%, revised downwards from a previous estimate of 6.8%.

Further, SBI Research estimates that for the succeeding three quarters, growth would be -12% to -15% for Q2, -5% to -10% for Q3 and -2% to -5% for Q4.

At a estimated contraction of 10.9%, SBI Research estimates that the central government deficit would be at 9.3% of GDP for the financial year: at ₹17.3 lakh crores in rupee terms.

Read this as part of their 'Econwrap' reports here.

5. India Ratings & Research

India Ratings & Research has slashed the economic forecast for FY21 to a contraction of 11.8%, down from a that of 5.3% shrinkage.

"While a second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve", it says.

Like CRISIL, agriculture is expected to be a bright spot, and grow 3.5%. The fiscal deficit of the central government is expected to be ₹15.17 lakh crore.

This can be read here.

Also Read: BJP Tweets IMF's April GDP Estimate Which Was Lowered In June

Watch BOOM's Govindraj Ethiraj speak with CRISIL's chief economist DK Joshi below.

Updated On: 2020-12-03T12:57:48+05:30
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