India's GDP growth to contract by 20% in June quarter, says ICRA report amid COVID-19 lockdown extension

On May 2, Prime Minister Narendra Modi, however, underlined the need for new structural reforms and expedite work on infrastructure projects to revive the economy reeling under the impact of lockdown.

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Mumbai: Domestic rating agency Icra on Monday (May 4) estimated that the country's GDP might contract by as much as 20 per cent in the June quarter and it may overcome some lost ground in the remainder of the year but still close 2020-21 down by up to 2 per cent.

The agency's latest report came out amid the government's announcement of graded relaxations for different COVID-19 zones in the lockdown. Icra's earlier economic forecast was a range, according to which the GDP may either expand by 1 per cent or contract by 1 per cent in 2020-21.

The agency said, "while the graded relaxations announced by the government will permit the resumption of economic activity, the relatively stringent norms in major urban centres will result in the pace of activity remaining constrained," adding that there is a likelihood of mismatches in labour availability and sectors, such as manufacturing, construction, trade, hotels and transport, will drag down growth.

It further said, "Accordingly, we now expect the Indian GDP (gross domestic product) to contract by 16-20 per cent in Q1FY21 (first quarter of 2020-21), which implies that a full-year contraction of 1-2 per cent is inevitable."

A slew of watchers have been forecasting for a heavy impact on the already sagging growth -- India was supposed to grow at a decadal low in 2019-20 as per official estimates -- because of the COVID-19 pandemic that has chilled all activity.

The government has already announced a Rs 1.7-lakh crore package to fight the COVID-19 crisis, which many feel is not sufficient. Some analysts have also said that over half of the stimulus package was already included in Budget 2020-21 announcements and is not fresh money. Even as many watchers point to the limited financial space available, there are reports that the government is working on a new package.

In order to push economic growth, the Reserve Bank of India (RBI) has cut the key policy rate (repo) by a steep 0.75 per cent and also taken a slew of unusual measures to make liquidity available for the needy sectors of the economy. 

RBI Governor Shaktikanta Das has also said that meeting the 3.5 per cent fiscal deficit target will be challenging and the government may miss the budgeted target. 

After keeping the country under a 40-day lockdown to arrest the spread of coronavirus, the government has extended the lockdown till May 17 with a slew of relaxations to the unaffected areas in order to kick-start economic activity.

On May 2, Prime Minister Narendra Modi underlined the need for new structural reforms and expedite work on infrastructure projects to revive the economy reeling under the impact of lockdown, while making these observations during a series of meetings to discuss strategies and interventions in the financial sector as well as structural reforms to spur growth and welfare in the current context.

The series of meetings with key Cabinet ministers, officials of economic ministries are likely to culminate into a second stimulus package for sectors, including MSME and the farm sector, hit hard by the outbreak of COVID-19 pandemic.

Dwelling on the issue of welfare of workers and the common man, he also pointed out the need to generate gainful employment opportunities by helping businesses overcome difficulties due to disruptions caused by COVID-19, an official statement said.

He also stressed on the need to strengthen major structural reforms undertaken in the past and new structural reforms in the areas of corporate governance, credit markets and infrastructure sectors were also discussed, besides citing the need to take speedy measures to commence work on new infrastructure projects and speed up works in the infrastructure sector so as to make up for the time lost in COVID-19.

He wanted the projects taken up under the National Infrastructure Pipeline (NIP) be reviewed at the highest level frequently to avoid time delays and enable the creation of jobs. The task force on NIP has recently submitted a report which projected a staggering Rs 111 lakh crore investment in the infrastructure sector by 2024-25.

During the deliberations, each ministry made recommendations and possible steps to be taken in the short run to prop up the sector administered by them. The PM already had meetings with different ministries including civil aviation, labour and power on Friday. 

Earlier in March, the government had announced a Rs 1.7 lakh crore stimulus package comprising free foodgrains and cooking gas to poor and cash doles to poor women and elderly. 

(With Agency Inputs)