The Indian economy is likely to witness a sharp contraction of 4.5% during Q4FY20 and is expected to recover gradually to post a GDP growth of just 2% in FY21, rating agency ICRA said.
ICRA said it reduced the growth forecast due to the nationwide lockdown imposed in the backdrop of the COVID-19 pandemic.
“Concerns have morphed from the impact of imports from China on domestic supply chains into domestic and external demand shock, with social distancing and lockdowns leading to production shutdowns and job losses in some sectors,” ICRA said. Sectors that will be impacted the most are aviation, hotels, restaurants and tourism, auto dealerships, ceramic tiles, gems and jewellery, retail, shipping, ports and port services, seafood and poultry and microfinance institutions.
The impact on sectors such as automobiles, auto components, building materials, construction, chemicals, residential real estate, consumer goods, pharmaceuticals, logistics, banking, mining, paper, consulting, ferrous metals, footwear, glass, plastics, power and trading are going to be moderate.
“The low impact sectors will be education, dairy products, fertilisers and seeds, FMCG, healthcare, food and food products, insurance, telecom, utilities, sugar, tea, coffee and agricultural produce,” ICRA said.
The rating agency said extended demand disruptions are likely to lead to elongated payment cycles.
“Since an entity’s liquidity position is of paramount importance to support its credit profile, it is expected that several entities would seek to conserve cash, either by invoking force majeure clauses to revoke payments or by deferring payments to the extent possible,” it said, adding this could result in many entities facing working capital blockage as their receivables get stretched and inventory not reducing simultaneously.
