India's growth may slip below 3 pc in FY21 if COVID-19 proliferates: KPMG

India's growth could slip below three percent in the current fiscal if COVID-19 proliferates within India, lockdown extended, and the global economy slips into recession, a KPMG report said.

7th Apr 2020
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India's growth could slip below three percent in the current fiscal if COVID-19 proliferates within India, lockdown extended and global economy slips into recession, a KPMG report said.


It said the three major contributors to GDP -- private consumption, investment, and external trade -- will all get affected due to the spread of the pandemic.


The KPMG report presented three scenarios to explain the economic effects of COVID--19. In the scenario of quick retraction across globe by April-end to mid-May, the report said "India's growth for 2020-21 may be in the range of 5.3 to 5.7 percent, though this scenario looks distant at this moment".
GDP



In the second scenario where India is able to control COVID-19 spread, but there is a significant global recession, the KPMG report said India's growth is expected to be in the range of 4-4.5 percent.


However if the pandemic proliferates and there is global recession, then it would be a double whammy for the economy as it will have to bear the brunt of both domestic and global demand destruction, KPMG report said.


"Prolonged lockdowns would exacerbate economic troubles. India's growth may fall below 3 percent under this scenario," it added.


These growth projections compare to an estimated 5 percent growth rate in 2019-20.


The report said steps taken to contain the virus spread such as the nationwide lockdown have brought economic activity to a near-standstill, with impact on both consumption and investment.


"While Indian businesses, barring a few sectors, can possibly insulate themselves from the global supply chain disruptions caused by the outbreak due to relatively lower reliance on intermediate imports, their exports to COVID-19 infected nations could take a hit," it said.

The report also suggests that India's textiles and apparel sector production is expected to decline by 10-12 percent in the April-June quarter owing to the coronavirus pandemic in India.


Demand shocks are expected to hurt India's textile exports over the next few quarters, the study observed, assessing the current and potential impact of coronavirus on the sector.


"With lockdown in China, the price of man-made fibre imports is expected to rise significantly, resulting in higher price for some goods in the domestic market. If the current scenario persists over the next few months, the domestic retail market would also be impacted significantly," said the study. From a manufacturing perspective, employment would be impacted owing to limited demand in both domestic and international market, it revealed.

Besides assessing the coronavirus impact on the country's micro, small and medium enterprises, the study noted that contractual wage labour will get impacted more leading to layoffs, unrest, and lowering of purchasing power.


(Edited by Megha Reddy)

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