Amid the nationwide lockdown in the wake of coronavirus outbreak, India Ratings and Research (Ind-Ra) has cut India's gross domestic product (GDP) growth forecast to 3.6% from 5.5% for the financial year 2020-21 (FY21). The spread of COVID-19 and the resultant nationwide lockdown imposed till April 14 will cripple most economic and commercial activities, the agency said in a latest report.

The agency has also lowered GDP forecast for current fiscal to 4.7% (9MFY20: 5.1%) from the National Statistical Office's advance estimate of 5%. It expects the GDP growth to come down to 3.6% in 4QFY20 and 2.3% in 1QFY21. This is the rating agency's fifth revision in GDP forecast so far. It had revised the GDP growth forecast to 5.6 per cent in January.

"The revision is based on the assumption of lockdown continuing till end-April 2020 (full or partial) and gradual restoration of economic activities May 2020 onwards," Indian subsidiary of Fitch group said in its report.

In the last one week, several rating agencies have cut its growth estimate for India due to the coronavirus pandemic. S&P Global Ratings has slashed its forecast for FY21 to 3.5% from its earlier estimates of 5.2% as it expects coronavirus to hit output. While CRISIL has lowered India's FY21 growth forecast to 3.5%, Moody's Investors Service had slashed India's GDP growth projection for 2020 to 2.5% from 5.3%.

As per Ind-Ra report, average growth is forecasted to decline to 2.8% in H1FY21 (April-September period) versus 5.3% in H1FY20 and recover to 4.3% in H2FY21 (H2FY20: 4.2%), due to the base effect and a gradual recovery and restoration of supply chain.

Some of the initial and visible impact of the spread of COVID-19 on the India economy has been the disruption in the production of select manufacturing sectors due to the breakdown of supply chain, near collapse of tourism, hospitality and aviation sectors and a rise in the work load of the healthcare sector. The micro, small and medium enterprises (MSMEs), irrespective of the sector they operate in, have begun to witness cash flow disruptions. This is not to say that other sectors are not impacted.

India Ratings, however, said that some the services sectors such as financial services, IT and IT enabled services have greater flexibility in their operations and they quickly readjusted or are readjusting their operations by allowing employees to work from home.

According to Ind-Ra, panic has gripped the Indian capital markets like elsewhere in the world. A changed outlook of investors has led to a huge outflow of capital and the rupee has come under intense pressure. Also, significant wealth erosion would impact the consumption levels, it said.

Adding to the woes, disruption in maturing and harvesting of rabi crop coupled with inability of agricultural markets to timely procure them could hit the farmers' income and rural demand. A stop on the construction activities will accelerate the problems of the real estate sector which is still struggling to access funding in the middle of a meltdown in the NBFC and banking sectors, it said.

It is notable that after agriculture, construction is the largest employment generator in the Indian economy.

Besides, closure of non-essential commercial establishment and multiplexes will also have a ripple effect on many sectors, the report said. This will led to decline in demand for consumer durables, entertainment, sports, wholesale trade, transport, tourism, hospitality etc.

In a bid to minimise the adverse impact of COVID-19 and the lockdown, both government and the Reserve Bank of India have announced several measures. The government has so far announced measures which are focussed on easing business related processes/compliance and a package for the vulnerable sections of the society. Similarly, the regulator has responded to the evolving situation in two tranches. In the first one, it announced measures to avert any immediate disruption in the financial system through a liquidity infusion and in the second one, it has eased the regulatory and supervision related norms to mitigate the financial stress building up in the system.

Ind-Ra expects the government to announce more measures in the coming days/weeks to mitigate the pains and concerns of the other sectors of the society/economy.