Tuesday, 18 January, 2022
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With double-digit GDP decline forecasts, India’s recovery prospects go from bad to worse

The dip in GDP, and ongoing stress in banking sector and households, will curb India’s medium-term growth potential, with experts predicting a slowdown to 6%.

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Mumbai: 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 already historic 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 is forecasting -9%. The Organisation for Economic Co-operation and Development sees the economy shrinking by 10.2%.

The failure to get infections under control will set back business activity and consumption — the bedrock of the economy — which had been slowly picking up after India began easing one of the world’s strictest and biggest lockdowns that started late March. Local virus cases topped the 5 million mark this week, with the death toll surpassed only by the U.S. and Brazil.

“While a second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve,” said Sunil Kumar Sinha, principal economist at India Ratings and Research Ltd., a unit of Fitch Ratings Ltd. He now sees India’s economy contracting 11.8% in the fiscal year, far worse than his earlier projection of -5.8%.

Goldman Sachs’s latest growth forecast came last week after data showed gross domestic product plunged 23.9% in the April-June quarter from a year ago, the biggest decline since records began in 1996 and the worst performance of major economies tracked by Bloomberg.

While there are some signs that activity picked up following the strict lockdown, a strong recovery looks uncertain.

“By all indications, the recovery is likely to be gradual as efforts toward reopening of the economy are confronted with rising infections,” Reserve Bank of India Governor Shaktikanta Das told a group of industrialists Wednesday.

Lower potential

The central bank will likely release its own growth forecast on Oct. 1 when the monetary policy committee announces its interest rate decision. In August, the RBI said private spending on discretionary items had taken a knock, especially on transport services, hospitality, recreation and cultural activities.

The plunge in GDP, as well as ongoing stress in the banking sector and among households, will curb India’s medium-term growth potential. Tanvee Gupta Jain, an economist at UBS Group AG in Mumbai, estimates potential growth will slow to 6% from 7.1% year-on-year estimated in 2017.

What Bloomberg’s economists say

“India went into the Covid-19 pandemic already suffering a downward trend in growth potential. We expect a 10.6% contraction in fiscal 2021, rebound in 2022, and slower path for growth as scars from the virus recession drag on the remaining years of the decade,” said economist Abhishek Gupta.

In addition to that, corporate profits have collapsed, putting a brake on investments, which in turn, will curb employment and growth in the economy.

India is “likely to see a shallow and delayed recovery in corporate sector profitability over the next several quarters,” said Kaushik Das, chief economist at Deutsche Bank AG in Mumbai, who has downgraded his fiscal year growth forecast to -8% from -6.2%. That will “reduce the incentive and ability for fresh investments, which in turn will be a drag on credit growth and overall real GDP growth,” he said. – Bloomberg


Also read: Too much reliance on Reliance – the not-so-healthy secret of India’s stock market rally


 

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1 COMMENT

  1. Anirban and all rating agencies can go to Pakistan. We don’t condone this sort of negativity here. I’d rather listen to good things about India all the time because my massive ego and negligible self assurance takes a beating when you resort to data.
    All these rating agencies are fake. They have an agenda against India. GDP should not be used as a parameter to measure economic performance. My nephew’s friend is a commerce graduate so I know better than all economists combined.

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