Updated: September 4, 2020 11:12:41 am
Workers carry sacks of food grains at a market in Kolkata on Thursday, Sept. 3, 2020 (AP Photo: Bikas Das)
The GDP growth figure for the first quarter, a 24% contraction, was in line with expected and shows that the Indian economy has plummeted due to the lockdown.
“Full-year growth is likely to be on the order of (-) 6.4%, which is based on a low negative growth number for the first two quarters with certainty, possibly a close to positive number in the third. quarter, and positive growth in the last quarter, ”writes Madan Sabnavis, chief economist at CARE Ratings.
But two basic factors would influence assumptions about growth prospects for the next few quarters.
The first is the “Unlocking” process. It has been observed that with the economy moving from the total lockdown stage in April to a gradual opening of the windows in May and June, and then the door opening a little more significantly in July and August, the movement from one stage to another does it was reflected in macroeconomic figures such as the Industrial Production Index (IIP).
Sabnavis warns that although it is reasonable to assume that the “Unblocking” process will be positive for the economic sectors, there is no certainty that there will not be localized blockages.
“The Center has made strong statements on this issue, but states could end up making specific decisions. This affects economic activity, since supply chains, which extend throughout the country, are strongly impacted. Also, business units are not sure about starting or expanding their business. ” he writes.
The second factor that will influence the growth prospects of the economy in the coming months is the possibility of a reactivation package by the government.
“This can change the course of the growth trajectory,” says Sabnavis.
Until now, government support has been more through the indirect route, where food aid for the poor has been combined with more aggressive lending from the financial system with guarantees in different forms.
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To drive growth today, ideally there should be some additional capital spending by the government that goes beyond what has been planned in the budget.
“This seems to be the logical solution as the GDP figures for the first quarter show a decrease in both consumption and investment. By increasing capital spending, the government can start a virtuous cycle of asset creation and job creation ”. he concludes.
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