CARE Ratings has downgraded India’s economic growth rate for the current fiscal year to 9.2 per cent. The revised estimate is based on a study it carried out to assess the impact of the second Covid wave, the consequent local lockdowns, and a staggered vaccination process on the prospects of the economic recovery.

The study tried to seek views of people on how business operations, including small and medium enterprises (SME), would be affected, and the relief measures that the governments and the Reserve Bank of India (RBI) may adopt to mitigate the impact.

“The economic recovery is beginning to lose steam with infection rates scaling record highs. Almost seven out of 10 respondents expect GDP (growth) to be below 9 per cent for FY22,” said the study.

Around 71 per cent of the 303 respondents projected the GDP for 2021-22 to be below 9, around 20 per cent pegged it at 9 per cent to 10 per cent, 6 per cent forecast it at 10-11 per cent and 3 per cent said it would be between 11 per cent and 12 per cent. Only two respondents have beebn overtly optimistic to project the economic growth above 12 per cent for the fiscal.

“The uncertainty following the second wave of the pandemic and the localised and varied degree of lockdowns have dampened the prospects of economic recovery and, accordingly, CARE Ratings has further revised its GDP growth forecast to 9.2 per cent for FY22 from its initial projection of 11 per cent to 11.2 per cent,” said the report.

India had witnessed the outbreak of the pandemic at a time last year when the economy was under the grip of a sustained slowdown, fuelled by a mounting load of bad debt on public sector banks and a consequent liquidity crunch, a deep slide in the automobile industry and a record surge in unemployment. Consumption had hit its nadir after the country went into one of the longest and strictest lockdowns in the world from end-March 2020.

After the second wave of the pandemic began ravaging lives in the country, the study found that 80 per cent of the respondents believe that the condition of non-performing assets (NPA) will worsen as a result of the lockdowns and restrictions.

“The RBI had projected NPAs to increase to 13.5 per cent (baseline scenario) by September 2021, considering the lockdown impact of 2020. One will have to wait and watch for the revision in estimates (if any) as collections have weakened owing to the recent lockdowns,” CARE Ratings said in a report.

Most respondents expect a moratorium by the central bank and an emergency credit line to be extended by the government as a policy response to ease business conditions. Likewise, 77 per cent believed that the investment demand in the economy would be affected by the pandemic, while 78 per cent said the lockdown-imposing states must extend emergency credit guarantees. So far, these states have only announced relief measures in the form of cash-transfers and food.

The survey revealed that 67 per cent respondents believed release of pending dues from the government as a relief measure to ease the burden on businesses. Around 57 per cent suggested rate cut in indirect taxes, 46 per cent backed waiver of fixed cost payments, 40 per cent wanted reduction in tax rates and tax holidays/rebates, while 39 per cent supported employee guarantee schemes and 20 per cent offered various other measures.

So far, the central government has announced food relief measures worth Rs 25 000 crore, waiver of import duties on pharma-related commodities and easing of certain impending compliance burden. The respondents suggested several other measures such as relaxation of NPA norms, GST rebate, flexibility in payment of statutory dues were needed to ease the burden on businesses.

Another rating agency, CRISIL, has predicted that India's GDP growth will drop to 9.8 per cent in a moderate scenario, assuming the second Covid wave peaks by May-end. “The economic growth may slip further to 8.2 per cent in the severe situation when the second wave of the pandemic peaks by June-end,” it added.