• Gross Domestic Product
  • CRISIL Research Impact Note
  • GDP
  • CRISIL Research
  • Novel Coronavirus
  • Indian Economy
March 19, 2020

The Covid-19 fallout

Quantifying first-cut impact of the pandemic

SlashingIndia s base case GDP growth 50 bps


The Novel Coronavirus (Covid-19) has cast a long shadow over a much-anticipated mild recovery in the Indian economy in fiscal 2021, with the World Health Organization (WHO) declaring it a pandemic.


External risks to global growth has increased significantly now.


S&P Global foresees a recession in the US and the Eurozone, and has its forecast for China’s growth slashed to 2.9% from 4.8% announced on March 5.


Domestically, some hit to consumption demand because of social distancing is likely, though it is too early for that to reflect in data. Currently, the other downside to growth is also due to the financial sector stress now percolating to private sector banks.


In view of this, CRISIL has cut its base-case gross domestic product (GDP) growth forecast for fiscal 2021 to 5.2%, from 5.7% announced recently. This factors in the huge uncertainty because of Covid-19, with risks to the forecast tilted downwards. The forecast will be reassessed continuously as new information becomes available.


A serious downside to our base case can emerge from two developments. One, the pandemic is not contained by April-June 2020 globally, and makes the global slowdown more severe. And two, it spreads rapidly in India, affecting domestic consumption, investment, and production. These would further hurt confidence and the financial markets (see flow chart below).


Channels of transmission


In any case, India has little policy firepower to give a meaningful push to growth, and the pandemic is making it more difficult. While there will be steeper deceleration in global growth and India’s trade, what is unclear is the extent of impact on economy through domestic channels of production (supply) and consumption (demand).


The answer would depend largely on the extent of spread within India. So far, India is among the Asian economies that aren’t deeply impacted.


With the number of Covid-19 cases nearing 2 lakh and the death toll topping 7,800, the impact of the virus on global sentiment, economic and otherwise, has been immense. While new afflictions have been declining in China – the epicentre of the outbreak – since the end of February, it is spreading fast outside. New cases outside China now surpasses those in China, with Italy, Iran and South Korea being the worst affected.


With more than 120 countries reporting confirmed cases of Covid-19, its implications on the global economy is more threatening than envisaged a month ago.


India reported its first confirmed case on January 30. Over the past few weeks, that number has risen sharply to 137. However, there are only some signs of community transmission – the percentage of affected people is still low, with most cases related to travel. That said, the domestic situation remains fluid and warrants constant monitoring.