Citing the yet to be stabilised infection curve and the Covid-19 caseload in economically key states, Singaporean brokerage DBS on Wednesday forecast deeper distress for the country which will lead to a 6 per cent growth contraction in FY21.
In its earlier forecast, the brokerage had penciled in a minus 4.8 per cent growth for the current fiscal.
According to the report, just 7 per cent of the districts in economically key states of Maharashtra, Tamil Nadu and Gujarat, accounting for 30.5 per cent of the national economic output, and in Karnataka and Andhra Pradesh account for as much as 70 per cent of the caseload.
This will prolong the recovery and the pandemic is set to take a deeper economic bite, it said.
The virus infections have crossed 1.15 million in the country while the death due to the same are close to 29,000 now, making the country the third worst affected by the pandemic after the US with close to 3.9 million infections and Brazil with nearly 2.2 million cases.
“We temper growth forecasts to minus 6 per cent for FY21 due to the prolonged sub-normal reopening as the country is yet to stabilize the infection curve and the pandemic is going to take a deeper economic bite,” DBS economist Radhika Rao said in a note.
The yet to be stabilised infection curve reflects a deeper double-digit contraction in Q1 of FY21 and a shallower pickup in Q2 and a return to growth in Q3, she added.
“Our granular analysis shows that about 7 per cent of the districts account for 70 per cent of the total infection tally in economically key states like Maharashtra (14 per cent of national GDP), Tamil Nadu (8.5 per cent), Gujarat (8 per cent), and Karnataka and Andhra contributing significantly to the national economic output,” she said.
On top of this, localised lockdowns continue even today with Bihar and cities like Pune and Bengaluru still in lockdowns till July-end.
Domestic flights are also selectively restricted by some states and if more states go down this path, this may pose renewed supply chain disruptions as well as uncertainty for manufacturers, including automakers and electronics firms, warned the report.
On recovery, Rao said much depends on the extent to which rural demand and farm output, which is forecast to be at 2 per cent in FY21, will act as counter-balancing buffer for a slump in non-farm output.
She also expects another round of fiscal support package/stimulus in September/October, when the economy is fully opened.
The depth and permanency of the growth shock will also dictate when an upturn in the growth cycle can take root, she added.