Covid-19: Catch up to trend-GDP difficult in three years

However, this time around, things could be different, the agency said, alluding to the fact that the loss of GDP this time around could be much steeper.

Covid-19 pandemic will likely inflict a 10% permanent loss to real GDP, so a catch-up to the pre-crisis trend level of GDP won’t be possible over the next three fiscal years, Crisil has said. After the global financial crisis, a sharp growth spurt helped catch up with the trend within two years. However, this time around, things could be different, the agency said, alluding to the fact that the loss of GDP this time around could be much steeper.

GDP grew 8.2% on average in the two fiscals following the global financial crisis. Massive fiscal spending, monetary easing and swift global recovery played a role in a V-shaped recovery then. “To catch up would (now) require average GDP growth to surge to 11% over the next three fiscals, something that has never happened before,” the agency said.

According to the agency, India’s growth is likely to fall off the cliff and contract 5% in fiscal 2021, mowed down by the Covid-19 pandemic. “Economic conditions have precipitously slipped since our mid-April forecast of 1.8% GDP growth. The first quarter will suffer a massive contraction of 25%,” it said.

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.

The RBI has projected negative growth for FY21, without giving a specific estimate or range. However, some analysts have warned of an unprecedented contraction, given the first quarter washout. For instance, Nomura has predicted -5.2% growth for FY21, Crisil pegs it at -5% and SBI group chief economic advisor Soumya Kanti Ghosh projects it at -6.8%.