Indian economy may suffer a new low: poll

The Indian economy will suffer its deepest contraction on record this fiscal year and recent government stimulus does not go far enough to significantly boost activity depressed by the coronavirus pandemic, according to economists polled by Reuters.

With over 7.6 million Covid-19 infections, India is the second worst hit country in the world after the US and the spread shows no signs of abating.

While the government has removed most restrictions imposed on businesses to slow the spread of the virus, the RBI issued gloomy economic forecasts earlier this month but kept interest rates unchanged citing rising inflation.

That puts the onus on the government, which last week announced another round of fiscal stimulus to boost demand by $10 billion.

But the October 13-21 poll of 55 economists showed they were more pessimistic about this fiscal year’s outlook than just two months ago. Nearly 90% of economists, 34 of 39, who responded to an additional question said the latest government stimulus was not enough to boost the economy significantly.

“While the measures introduced to push consumer spending and capital expenditure are clearly innovative within the confines of fiscal prudence, they do little to move the needle significantly in terms of the growth outlook this (fiscal) year,” said Sakshi Gupta, senior economist at HDFC Bank.

After shrinking a record 23.9% in the April-June quarter, the Indian economy was forecast to contract 10.4% and 5.0% in the third and fourth quarter, respectively and merely stabilise in the first three months of 2021. For the current fiscal year ending March 31, Asia’s third-largest economy was predicted to shrink 9.8%, more than the RBI’s latest 9.5% projection, and 26 of 55 economists saw a contraction of 10% or more for the year.

Nearly 34 of 39 economists polled said the latest stimulus was not enough to boost the economy significantly.