With the Covid-19 pandemic spreading rapidly, S&P Global Ratings on Monday updated its estimate of economic loss to $620 billion for the Asia-Pacific region, which includes India. It has already lowered growth projection for India and other countries.
The total and permanent income loss for Asia-Pacific of approximately $620 billion will be distributed across sovereign, bank, corporate, and household balance sheets. In rupee terms, it comes to around ₹46,500 crore ($1 = ₹75). The agency lists 14 countries in its report for Asia-Pacific region, which includes mainly China, Japan, Australia and India
Growth projection lowered
In its latest report, the agency lowered estimate for next fiscal (2020-21, starting from April 1) from its December forecast of 6.5 per cent to 5.2 per cent. Similarly, for fiscal year 2021-22, projection for growth rate was revised by 10 basis point to 6.9 per cent. However, for the next two years (2022-23 and 2023-24), estimates remained at 7 per cent for both fiscals.
With lockdown declared in over 80 districts (out of 700 plus) and manufacturing activities halted in many sectors, including automobile, the Indian Government is yet to come out with any preliminary estimate of loss. Though the Prime Minister announced setting up a Covid-19 Economic Response Task Force under the Finance Minister, there is no formal communication on its constitution.
The Prime Minister had said in his address that this global pandemic was going to have a wide-ranging impact on the economy. Accordingly, the Task Force will take decisions in the near future, based on regular interactions and feedback from all stakeholders, and analysis of all situations and dimensions. This Task Force will also ensure that all steps taken to reduce the economic difficulties are effectively implemented.
Rate cut likely
Meanwhile, the agency estimated that rate of inflation for India to touch 4.7 per cent during current fiscal (2019-20), which will slip to 4.4 per cent in 2020-21 and further to 4.2 per cent in 2021-22. However, there is possibility that it will rise to 4.4 per cent in 2022-23 and 4.5 per cent in 2023-24.
Slippage in rate of inflation likely to push policy rate (better known as repo rate or the rate at which the RBI lends to the scheduled commercial banks) to 4.25 per cent during 2020-21. The Monetary Policy Committee (MPC) is scheduled to meet during March 31, April 1 and 3 and on the last day it will announce its resolution. It is expected that the committee will break its pause and go for a cut to provide relief to the Covid-19 affected economy.
Growth forecast for Asia-Pacific
S&P Global has also revised its projection for entire Asia-Pacific region. “We have revised our real GDP, inflation, policy rate, and unemployment rate forecasts. We now expect China’s GDP growth rate to slow to 2.9 per cent in 2020. Economies will contract in Hong Kong, Singapore, South Korea, and a newly deflationary Japan. The region’s average growth rate will be 2.7 per cent,” it said.
The agency acknowledged a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. “Some government authorities estimate the pandemic will peak in June or August, and we are using this assumption in assessing the economic and credit implications. We believe measures to contain Covid-19 have pushed the global economy into recession and could cause a surge of defaults among non-financial corporate borrowers,” it apprehended.