India will be hit hardest among the world’s major economies even after the pandemic dies down, with production 12% below pre-virus levels in the middle of the decade, according to Oxford Economics.
The balance sheet stress that had been building up before the coronavirus outbreak is likely to worsen, Priyanka Kishore, chief economist for South Asia and Southeast Asia, wrote in the report. She projects potential growth for India of 4.5% over the next five years, less than 6.5% before the virus.
“Headwinds already hampering growth before 2020, such as stressed corporate balance sheets, high bankrupt assets, the fallout from non-bank finance companies and weak labor market, are likely to worsen,” he said. . “The resulting long-term scars, probably among the worst globally, would push India’s growth trend to a substantial decline from pre-Covid levels.”
The contraction has not deterred Prime Minister Narendra Modi from reiterating his goal of turning India into a $ 5 trillion economy by 2025 from $ 2.8 trillion. While the government has announced a series of measures to support growth, they have fallen short of expectations to boost demand, leaving the central bank to do much of the heavy lifting. A document released by the Reserve Bank of India last week predicted that Asia’s third-largest economy has entered a historic technical recession. Official data must be delivered on November 27.
The International Monetary Fund predicts that GDP will shrink 10.3% in the year to March 2021, as Modi’s sudden lockdown paralyzed activity. While a strong rebound is anticipated as economic activity resumes, lingering scars remain.
HSBC Holdings Plc said India’s potential growth could fall to 5% in the post-pandemic world from 6% on the eve of the outbreak and more than 7% before the global financial crisis.
“All factors on the supply side feel the effect, with only the contribution of human capital unchanged from the pre-virus baseline,” Kishore said. “Capital accumulation is hit the hardest because we expect balance sheet tensions to worsen after the crisis, lengthening the investment recovery cycle.”
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