GDP growth may stay in negative territory

The Reserve Bank of India (RBI) on Friday said the impact of Covid-19 is more severe than anticipated earlier and the GDP growth in the current fiscal (2020-21) would remain in negative territory.

The outlook of inflation also stays "highly uncertain", said RBI governor Shaktikanta Das, announcing yet another set of monetary measures, including a 40-basis point repo rate cut, to pull the economy out of the current crisis .

This is the second sharp cut in the key policy rate in two months. On March 27, the Monetary Policy Committee (MPC), the ratesetting panel of the RBI, had cut the key short-term lending rate by 75 basis points.

Given all the uncertainties related to the lockdown and social distancing, he said, "GDP growth in 202021 is estimated to remain in negative territory, with some pick-up in growth impulses from second half of 2020-21 onwards."

Observing that the risk to the growth are "gravest", in an address through television, the governor said "the combined impact of demand compression and supply disruption will depress economic activity in the first half of the year".

Even if the economic activities are restored in a phased manner, the combination of fiscal, monetary and administrative measures being currently undertaken would create conditions for a gradual revival in activity only in the second half of 2020-21, he added.

"Nonetheless, downside risks to this assessment are significant and contingent upon the containment of the pandemic and quick phasing out of social distancing/lockdowns," Das said, adding that much would depend on how quickly the Covid-19 curve flattens and moderates.

The end-May 2020 release of NSO on national income should give greater clarity, enabling more specific projections of GDP growth in terms of both magnitude and direction, he said.

Das-headed MPC was of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress.

Also, the impact of the shock was compounded by the interaction of supply disruptions and demand compression.

In view of the virus crisis, the three-day meeting of MPC was advanced to May 20-22 from June 3-5.

"The recent release of macroeconomic data, that for the first time revealed the damage wrought by COVID-19, brought forward the need for an offcycle meeting of the MPC," the governor said.

He said domestic economic activity has been impacted severely by the twomonth lockdown.