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

Hindustan Times (Jalandhar) - - HTBUSINESS - Asit Ran­jan Mishra asit.m@livemint.com

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.

AFP

The govern­ment has eased re­stric­tions and al­lowed busi­nesses to restart op­er­a­tions.

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