Bleak outlook for FY21 as curtain falls on FY20
LOCKDOWN IMPACT S&P Global Ratings cut GDP forecast to 3.5% from 5.2%
NEW DELHI/MUMBAI: The Indian economy is set to slow down sharply as companies face the prospect of going weeks or even months with virtually no revenue and consumer demand likely to remain soft even after the coronavirus crisis blows over because of bankruptcies, jobs losses and the resultant psychological scars.
Forecasters are slashing India’s economic growth estimates for the financial year starting April 1, with most expecting a severe contraction in the June quarter output.
On Monday, S&P Global Ratings cut its estimate for GDP growth to 3.5% from its earlier estimate of 5.2%, as it expects the damages to the economy from the covid-19 pandemic for the AsiaPacific region to be as severe as the one during the Asian financial crisis of 1997-1998.
“Amid unusually high uncertainty, we forecast Asia-pacific growth to dive to 2.2% in 2020 with a U-shaped recovery taking hold only later this year—this would push activity 4 percentage points below trend,” it said in a report published on Monday.
Indian policy makers have announced several measures to counter the impact of the virus on the economy and more are likely to come in the next few weeks. While the government has announced a relief package for the hardest hit by the 21-day nationwide lockdown to prevent community transmission of the coronavirus, the Reserve Bank of India took a series of steps to boost liquidity in the banking system and encourage banks to lend.
The unprecedented lockdown is likely to shave off 74% of the real GDP from the bank’s earlier estimates for the first half of 2020, said Abheek Barua, chief economist at HDFC Bank Ltd.
“We see the possibility of growth contracting by 3% in April-june quarter that will keep growth weak but in the positive quadrant (for the full year),” Barua said. HDFC Bank has projected India’s GDP to grow at 3.2% in the next fiscal year.
Barua said the direct impact of the lockdown is likely to be severe for the services sector as consumption of non-essentials take a hit. “However, once the lockdown is lifted, we expect service sector activity to bounce back rather quickly. In comparison, the initial impact of the lockdown on manufacturing activity is expected to be somewhat lower as one-third of net value added in manufacturing comes from production of essential items such as food, beverages, petroleum and coke, pharma and medicinal products. The drag on manufacturing growth is likely to linger on beyond the first half of FY21,” he added.
Last week, International Monetary Fund managing director Kristalina Georgieva said the global economy could be staring at a recession that is as bad as or worse than the global financial crisis of 2008. IMF is expected to substantially reduce its growth estimates for most economies in its World Economic Outlook. Analysts were sceptical about the overall impact of the recent measures taken by the government and the Reserve Bank of India, given the economy has come to a virtual standstill. Many fear that the size of the fiscal and monetary stimulus may not be enough.
Swiss investment bank UBS also pared its India growth estimate on Monday to 2.5% for FY21 from 4%. “Economic policy choices will determine both the depth of the crisis and the strength of recovery. As the situation is still evolving, quantifying the economic impact of covid-19 is extremely challenging,” said Tanvee Gupta Jain, an economist at UBS.
Utpal Bhaskar in New Delhi and Nasrin Sultana in Mumbai contributed to this story.