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ICRA warns of deep recession, lowers FY21 growth forecast for India to minus 5%
May-21-2020

Domestic rating agency ICRA has warned of a deep recession as it drastically lowered FY21 growth forecast for India to minus 5 percent, citing the very modest fiscal support, extension of the nationwide lockdown and looming labour shortage. It also sharply revised downwards the growth contraction in Q1 to 25 percent as against the previous forecast of 16-20 percent and to minus 2.1 percent in Q2 from 2.1 percent growth previously, which implies a recession.

The agency said though the government has been claiming that its economic stimulus package is worth 10 percent of GDP or Rs 20.9 lakh crore, analysts have pegged it at just 0.8 - 1.2 percent of the GDP. It also said after the two phases of the nationwide lockdown, many experts warned of a minor contraction in growth. It also said but with the lockdown being extended to end-May, and expectation of substantial delays in getting the supply chains operational following the return of millions of migrant workers to their home states, Q1 degrowth will be deeper, and recovery will be shallower and more delayed than its earlier assessment.

However, the report stated that the economy may see a moderate 2.1 percent growth in Q3 as against previous estimate of 3.6 percent growth and 5 percent in Q4. The much-touted Rs 20.97 lakh crore package includes Rs 8.02 lakh crore monetary measures announced by the Reserve Bank since February as well as the Rs 1.93 lakh crore initially announced by the Centre and revenue foregone due to tax concessions. According to ICRA, these announcements are only enabling provisions to support a recovery after the lockdown by helping the most stressed sectors get working capital credit and none of these offer to absorb their losses from the lost output for more than two months.

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