The grim fallout of India’s self-imposed lockdown of more than 2 months is coming to the fore now. The economic growth has now dipped to zero or even negative leading to a contraction. While continuing the lockdown, the Government has relaxed restrictions on certain business activities, offices have been permitted to be reopened now and a massive economic package was announced, giving hope that a revival may be in the offing. However, the exponential increase in Covid-19 cases and its rapidly rising spread throughout India, despite the lockdown, has impacted people from returning to normal business and commercial activities.

Moody’s Estimates Extensive DamageMoody’s Investors Service said India’s economy will not grow in the current financial year because of the “deep shock” triggered by the coronavirus outbreak and cautioned against downside risks to growth from a further extension of the lockdown. Moody’s expects a bounce-back to 6.6% growth in FY22, assuming a gradual pick-up in economic activity and demand in the second half. The rating company had predicted 2.5% growth for India in FY21 in March 2020, as reported by Asia Law Portal. It reaffirmed India’s Baa2 rating with a negative outlook, indicating a credit upgrade was unlikely in the near term, as it estimated a fiscal slippage of up to two percentage points to 5.5% of GDP against the budgeted 3.5%. The economic jolt from the coronavirus outbreak will weigh significantly on growth until at least the second half of 2020.

Subsequently, Moody’s Investors Service released a new report titled  “Coronavirus – India: Lockdown compounds economic challenges as credit risks rise in many sectors” wherein it states that economic damage as a result of India’s coronavirus lockdown will likely be extensive and reflect the country’s inherent economic vulnerability and fiscal constraints, with wide-ranging effects on both public and private sectors. “We expect the economic fallout from the coronavirus outbreak to weigh on already fragile household consumption which, coupled with sluggish business activity, will result in a sharp decline in India’s economic growth in fiscal 2020-21,” says Deborah Tan, a Moody’s Assistant Vice President and Analyst. Even before the coronavirus outbreak, the economy had already been growing at its slowest pace in six years. Adding the impact from the outbreak, Moody’s now expects India’s real GDP to contract in the fiscal year ending March 2021 (fiscal 2020-21) compared with an earlier projection of zero growth. The economy is also expected to recover somewhat more strongly in fiscal 2021-22 relative to an earlier forecast of 6.6% growth. “Moreover, we expect the economic shock from the coronavirus to result in significant slippage from the central government’s budgeted deficit target for fiscal 2020-21,” adds Tan. While the announced stimulus will bring a degree of relief to rural households and micro, small and medium-sized enterprises (MSMEs), the measures are unlikely to offset lower activity resulting from the extended lockdown.

Economic Contraction LikelyThe Reserve Bank of India (RBI) delivered an emergency rate cut for the second time in as many months on Friday as it judged that the coronavirus pandemic poses a grave threat to the country and will lead to the first economic contraction in 40 years. The monetary policy committee’s (MPC’s) shift of focus to reviving growth, prompted by the severe economic stagnation, is borne out by its emphasis on smoothening transmission of lower rates and improving industry’s access to working capital, elongating the borrowers’ repayment curve to ease debt servicing stress and relaxing asset classification norms.

“It is in the growth outlook that the MPC judged the risks to be gravest. The combined impact of demand compression and supply disruption will depress economic activity in the first half of the year,” governor Das said in a statement. The MPC believes that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress.

Fitch Forecasts Biggest Growth Cut for India Fitch Ratings has made further cuts to world GDP forecasts in its latest Global Economic Outlook (GEO). The biggest forecast cut was to India where we now anticipate a 5% decline in the current financial year (ending March 2021) in contrast to an earlier forecast of growth of 0.8% as reported by Asia Law Portal in April 2020. India has had a very stringent lockdown policy that has lasted a lot longer than initially expected and incoming economic activity data have been spectacularly weak. On the brighter side, the GEO forecasts the GDP for India in FY 2021-22 to be 9.5%, which is the highest among all the countries whose GDP forecasts were provided in the report.

Global Objection to Labour Law ChangesThe International Labour Organisation (ILO) has taken up with Prime Minister Narendra Modi the concerns related to the proposed labour law amendments by the state governments in India. The ILO has acted upon a complaint by ten central trade unions earlier this month, objecting to the ordinances proposed to temporarily scrap the labour laws in Uttar Pradesh and Gujarat, along with executive orders issued by at least 10 states to increase the daily working limit to 12 hours from 8 hours, along with other labour law changes.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at; Twitter: @sourish247

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