Sharp downturn in manufacturing

Depending on the duration of the lockdowns that have been imposed, ICRA expects Indian GDP growth to range from 4.7% to 5.2% in FY2021 (4.7%E for FY2020).

Projecting this on 25 Mar 2020, ICRA said it expected a sharp downturn in various manufacturing and services sectors, particularly those catering to domestic discretionary activities, such as travel, tourism and recreation, labour intensive sectors such construction and transport, as well as exports from March 2020 onwards.

With some large companies involved in production of discretionary items announcing shutdowns, the SME sector as well as unorganized sector are likely to be adversely impacted.

In addition to a severe demand slowdown, many sectors could witness disruptions in payments and an elongation of the receivables cycle, along with the emergence of contractual disputes, all of which would strain the liquidity situation, and may lead to a rise in delays in servicing debt obligations unless forbearance is extended.

Moreover, job losses, especially of contractual employees in manufacturing as well as retail sectors may rise, it cautioned.

Additionally, the loss of incomes may result in constrained consumption, some rise in defaults on personal loans, and could emerge as a risk for microfinance institutions, especially in the urban areas, said ICRA. fiinews.com

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