The Manila-based Asian Development Bank (ADB), on September 15, 2020, projected the Indian economy to contract 9 per cent in the current fiscal year ending March 31, 2021 as rising Covid-19 cases will keep private spending and investment lower for longer.
India’s economy shrank 23.9 per cent year-over-year in the March to June period. The pandemic and tight lockdown measures knocked private consumption by 26.7 per cent, while fixed investment sunk 47.1 per cent.
The multilateral bank, however, expects GDP to rebound next fiscal with an 8 per cent growth if measures such as robust testing, tracking, and ensuring treatment capacities, to contain the spread of the coronavirus, are implemented consistently and effectively.
ADB’s move follows rating agency S&P Global Ratings on September 14, 2020, forecasting a 9 per cent contraction in the Indian economy in FY21. Fitch Ratings and Moody’s Investors Service have also lowered their estimates for FY21 to a contraction of 14.8 per cent and 11.5 per cent, respectively, while investment bank Goldman Sachs has forecast GDP to shrink by 10.5 per cent this fiscal.
ADB said India’s economic growth remains vulnerable to either a prolonged outbreak or a resurgence of Covid-19 cases. Also, increasing public and private debt levels that could affect technology and infrastructure investment, as well as rising non-performing loans could further weaken the financial sector and its ability to support growth.
As per ADB, steps taken by the Indian government to address the pandemic, including a rural employment guarantee programme and other social protection measures, will aid rural incomes protecting the vulnerable people, but private consumption may continue to suffer.
S&P does not expect policymakers to enforce further widespread lockdowns. The larger adverse shock to growth will be driven by corporate balance sheet damage with small and mid-size enterprises closing shop, and larger firms holding back capital expenditure, which will constrain their growth capacity.
Going forward, S&P projects a larger permanent loss in output of 13 per cent over the next three years. A growth of 6 per cent in fiscal 2022 and 6.2 per cent in fiscal 2023 is expected. Before the pandemic, however, India’s economy was expected to expand 6.5 per cent in the current fiscal year.
Courtesy: Hindustan Times, Sept 15 and 16, 2020