India set for its deepest recession yet: Analysts
S&P said Indian economy will contract 5% in FY21, while UBS expects it to shrink 5.8% in the current fiscal
NEW DELHI: Professional forecasters veered towards a consensus that India’s economy will face its worst recession in 40 years, contracting by at least 5% this fiscal, a day before the statistics department releases the March quarter GDP print, which will partially reflect the unfolding impact of the pandemic on the economy.
On Thursday, S&P Global Ratings said the Indian economy will contract 5% in FY21, assuming that the ongoing outbreak in India will peak in the September quarter while Swiss bank UBS said India’s economy could shrink 5.8% during the current financial year amid weaker-than-expected domestic economic activity and the ongoing global recession. Earlier, S&P’s Indian arm Crisil, Fitch Ratings and Goldman Sachs projected India’s economy to contract 5% in FY21.
Although the government has eased restrictions and allowed businesses to restart operations, India’s more than two-month-long lockdown and flight of migrant workers from urban and industrial centres have crippled economic activity. Goldman Sachs has pointed out that India’s stringent lockdown and tepid fiscal support, small compared with even other emerging economies, may lead to GDP contracting by a massive 45% in the June quarter.
S&P said a big hit to growth will mean a large, permanent economic loss and deterioration in balance sheets throughout the economy. “The risks around the path of recovery will depend on three key factors. First, the speed with which the covid-19 outbreak comes under control. Faster flattening of the curve— in other words, reducing the number of new cases—will potentially allow faster normalization of activity. Second, a labour market recovery will be key to getting the economy running again. Finally, the ability of all sectors of the economy to restore their balance sheets following the adverse shock will be important. The longer the duration of the shock, the longer recovery,” it cautioned.
Growth projections by economists for the March quarter vary between 0.5% and 3.6%. That compares with the 4.7% growth registered in the preceding December quarter. The March quarter growth number will be keenly watched as it includes one week of lockdown, which has the potential to skew the growth numbers.