India’s economic recovery prospects have gone from bad to worse after the nation emerged as a new global hotspot for the coronavirus pandemic with more than 5 million infections.
Economists and global institutions like the Asian Development Bank have recently cut India’s growth projections from record lows as the virus continues to spread. Goldman Sachs Group Inc. now estimates a 14.8% contraction in gross domestic product for the year through March 2021, while the ADB forecasts -9%. The Organization for Economic Cooperation and Development forecasts that the economy will contract by 10.2%.
Lack of infection control will delay business activity and consumption, the foundation of the economy, which had been slowly recovering after India began easing one of the world’s toughest and largest lockdowns that began in late March. Local virus cases surpassed the 5 million mark this week, and the death toll was only surpassed by the United States and Brazil.
“While a second wave of infections is being witnessed globally, India has not yet been able to flatten the first wave of the infection curve,” said Sunil Kumar Sinha, chief economist at India Ratings and Research Ltd., a unit of Fitch. Ratings Ltd. now sees the Indian economy contracting 11.8% in the fiscal year, much worse than its previous projection of -5.8%.
Goldman Sachs’ latest growth forecast came last week after data showed gross domestic product plummeting 23.9% in the April-June quarter from a year earlier, the biggest drop since records began. in 1996 and the worst performance of the major economies followed by Bloomberg.
While there are some signs that activity picked up after the tight shutdown, a strong recovery appears uncertain.
“By all indications, the recovery is likely to be gradual as efforts to reopen the economy are faced with a surge in infections,” Reserve Bank of India Governor Shaktikanta Das said on Wednesday. to a group of industrialists.
Lower potential
The central bank is likely to release its own growth forecast on October 1 when the monetary policy committee announces its decision on the interest rate. In August, the RBI said that private spending on discretionary items had taken a hit, especially in transportation services, hospitality, recreation and cultural activities.
Falling GDP, as well as ongoing stress in the banking sector and among households, will dampen India’s medium-term growth potential. Tanvee Gupta Jain, an economist at UBS Group AG in Mumbai, estimates that potential growth will slow to 6% from the estimated 7.1% year-on-year in 2017.
What Bloomberg Economists Say
India entered the Covid-19 pandemic already suffering a downward trend in growth potential. We expect a 10.6% contraction in fiscal 2021, a rebound in 2022, and a slower growth trajectory as the scars of the virus recession creep into the remaining years of the decade.
Abhishek Gupta, Indian economist
On top of that, corporate profits have collapsed, holding back investment, which in turn, will hold back employment and the growth of the economy.
India is likely to “experience a shallow and lagged recovery in corporate sector profitability over the next few quarters,” said Kaushik Das, chief economist at Deutsche Bank AG in Mumbai, who has lowered his growth forecast for the fiscal year to -8. % from -6.2 That “will reduce the incentive and capacity for new investment, which in turn will be a drag on credit growth and real GDP growth in general,” he said.
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