CLSA says India’s real GDP to fall 15% in FY21; pegs fiscal deficit at 8%

Mumbai: CLSA believes Covid-19 is likely to cost more than $600 billion to India’s gross domestic product (GDP) and over $135 billion on government finances.

“CLSA’s estimate of a 15% YoY fall in India’s real GDP implies a more than US$600 billion miss in FY21 nominal GDP. Loss of revenue plus Covid-19 economic package cost may impact combined state/central government FY21 finances by more than US$135 billion, taking the FY21 fiscal deficit to 8% of GDP – about 12% including state deficits,” said CLSA.

India’s GDP contracted by 23.9% in the June quarter from the same period a year ago due to the economic fallout of the Covid-19 pandemic. GDP grew 3.1% in the March quarter.


Last week, Jefferies’ chief global equity strategist Christopher Wood in his weekly note ‘Greed & Fear’ said the lack of room to expand fiscal deficit is further aggravated by the constraints on monetary policy seemingly posed by a pickup in inflation, aggravated by supply-side issues.

While many large nations will have double-digit fiscal deficits this year, India’s credit rating is one of the lowest amongst these, CLSA said.

The brokerage said this may limit the likelihood of big tax cuts as consumption stimulus.

A tax hike overhang may continue for the likes of ITC and equity supply for the likes of ONGC and Coal India, said CLSA.

The brokerage said uncertainty on timely sale of stakes in LIC as well as BPCL may make the government aggressive in monetising stakes in ONGC, Oil India, Coal India, etc., where the stake is higher than 51%. This could be at a material discount like Hindustan Aeronautics, the brokerage said.