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    India’s economy heads for double-digit decline as virus spikes

    Synopsis

    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.

    Reuters
    The plunge in GDP, as well as ongoing stress in the banking sector and among households, will curb India’s medium-term growth potential.
    Coronavirus

    COVID-19 CASES

    Confirmed
    7,651,107
    Deaths
    115,914
    by Anirban Nag

    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.

    graph-1Bloomberg

    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. — Abhishek Gupta, India economist

    graph-2Bloomberg

    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.
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    70 Comments on this Story

    RajTill till30 days ago
    it is no longer a news only news filler
    Surjo Dipto31 days ago
    This is really a very sad and worrisome scenario that the curve of the pandemic is still on the ascendency. The coming winter may worsen the situation further, many has predicted. But we feel that the curve will reach the plateau in the winter instead as the so called herding effect will assume momentum. And then start to decline by next March or May at the latest. The pandemic, however, is not the only cause of economic nose dive. The political decision making at the highest level, both internal and external, is grossly unwise and lacks foresight. Internally, the impact of GST and non monetization is still to overcome. Plus fiscal incentives to revive the economy is grossly inadequate and did not reach most of the people who were the greatest victim of this economic downfall. Externally, confrontation with China and Pakistan is giving no economic dividends. Rather, scarce resources are being diverted to buy arms and ammunition. Intra- trade within the subcontinent has diminished so is the case with external trade due to the effects of pandemic all right but nothing concrete steps have been taken to overcome the hurdles. Rather boycotting Chinese products is having negative effect on the treasury as the same commodities are being imported at higher cost. The hindutva agenda of the present regime is harming India's image as liberal democratic polity. The NRC issues like in Burma, is making a section of its own citizens stateless thus refraining them from internal investments.
    Ashok Kumar32 days ago
    India is thw wealthiest country in the world if government is ready to unlock hidden asset, black money.
    Every citizen in the country know this but we cant protest eventhough we live in a democratic country.
    I
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