CRISIL has revised its growth outlook for India in fiscal 2021 down to 1.8 per cent from the earlier estimated 3.5 per cent, factoring the nationwide lockdown in place to flatten the Covid-19 curve.

The forecast by the rating agency assumes the effect of the pandemic subsiding materially in the current quarter, besides a normal monsoon, and minimum fiscal support of Rs 3.5 lakh crore.

Fiscal support may need to be even increased at the central and state levels to ensure relief reaches, apart from vulnerable households, even vulnerable firms, especially micro, small and medium enterprises (MSMEs), the global analytics company has said in its research report.

It said that there is also a possibility that parts of the economy will continue to face restrictions beyond May 3, 2020, when the 40-day lockdown would end. Also, a global recession is now guaranteed with deep contraction in advanced countries.

S&P Global has marked down its global GDP forecast to -2.4 per cent in 2020 compared to 0.4 per cent growth earlier. Risks to our India forecast are tilted to the downside, manifestation of which could take GDP growth to even zero, CRISIL Research said.

Dharmakirti Joshi, Chief Economist, CRISIL, "We see a permanent loss of 4 per cent of GDP. Fiscal 2022 is likely to see a V-shaped recovery at over 7 per cent real GDP growth. But even assuming growth sustains at this level for the next three years, real GDP will stay below its pre-Covid-19 trend path."

The lockdown, has started hurting already. In March, for instance, automobile sales contracted 44 per cent on-year even as exports fell 35 per cent with worst yet to come. This deep slowdown and across the broad plain leaves large swathes of India's informal workforce vulnerable, particularly in construction, manufacturing and services sectors.

The most affected are daily-wage earners and those with no job security. In India, casual labourers form almost 25 per cent of the workforce and would take the first hit due to shutdowns and layoffs.

The situation is bad for the formal workforce, too. A CRISIL Research analysis of over 40,000 companies with employee cost of Rs 12 lakh crore indicates that about 52% of the employee cost is incurred by companies in sectors that will see material increase in stress in case of extended lockdown.

The sharp deceleration in growth and increased income uncertainty is certain to pull demand down.

"In the year ahead, we expect consumer discretionary services and products such as airlines, hotels, automobiles and consumer durables to be the worst-hit. Non-pharma exporters, real estate and construction companies also face one of their worst years. Even resilient sectors such as IT services will see muted growth as global budgets on IT spending fall."

MSMEs are more vulnerable than larger players, especially on the liquidity front. CRISIL's research suggests that even in a relatively milder slowdown than expected this fiscal, MSME working capital can stretch by over a month.

Prasad Koparkar, Senior Director and Head - Growth, Innovation and Excellence Hub, CRISIL, "As India Inc stares at a double-digit slide in revenue this fiscal, the worst in at least a decade, Ebitda is set to fall sharply - by over 15 per cent - in our base case scenario of 1.8 per cent GDP growth. The adverse impact of operating leverage due to sharp revenue decline will drown all the benefits accruing from lower material and energy costs following across-the-board decline in commodities."

Poor credit growth, including retails loans, along with rising NPAs and credit costs will singe banks and NBFCs. We expect banking sector NPAs to rise to 11-11.5 per cent by March 2021 from an estimated at 9.6 per cent as of March 2020, with sharply lower recoveries and rising slippages, the report said.

NPAs are expected to swell for non-banking finance companies, too, with microfinance, MSME loans and wholesale/developer funding witnessing the sharpest spike. Asset quality deterioration will, however, remain moderate in housing loans and gold finance with less than 50 bps increase in NPAs.