Indian economy to contract by 5.3%; growth lowest: Ind-Ra

25 Jun '20

3 min read

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India’s gross domestic product (GDP) is expected to contract by 5.3 per cent year on year (YoY) in fiscal 2020-21, according to India Ratings and Research (Ind-Ra), which recently said this will be the lowest GDP growth in Indian history and the sixth instance of economic contraction, others being in 1957-58, 1965-66, 1966-67, 1972-73 and 1979-80.

The previous low was negative 5.2 per cent in 1979-80.

The disorder caused by the COVID-19 pandemic unfolded with such a speed and scale that the disruption in production, breakdown of supply chains, trade channels and total washout of activities in aviation (some activity has started now), tourism, hotels and hospitality sectors will not allow the economic activity to return to normalcy throughout 2020-21.

As a result, besides contracting for the whole year, GDP will contract in each quarter in this fiscal, Ind-Ra said in a press release.

However, the agency believes the GDP growth would bounce back in the range of 5-6 per cent in 2021-22, aided by the base effect and return of gradual normalcy in the domestic as well as global economy.

Ind-Ra’s calculations show the direct fiscal impact of the government’s ₹20.97-trillion economic package is only ₹2,145 billion (1.1 per cent of GDP). The lockdown and its impact on economy and livelihoods only aggravated the sagging consumption demand.

Ind-Ra believes the government is aware of it; but, the near absence of demand-side measures in the economic package indicates the hard budget constraint facing the government.

The external environment continues to be challenging due to COVID 19 related restrictions coupled with trade friction and protectionist policy pursued by many developed economies. Ind-Ra expects merchandise exports to decline by 9.4 per cent YoY in 2020-21, as all major export commodities would clock negative growth.

Merchandise imports are expected to decline by 17.4 per cent YoY in this fiscal.

From the supply side, agriculture is the only bright spot. Agricultural gross value added (GVA) is expected to grow by 3.5 per cent YoY in this fiscal. The industry and services GVA is expected to contract by 15.8 per cent and 2.2 per cent respectively.

Ind-Ra expects the retail and wholesale inflation to come in at 3.6 per cent and 1.2 per cent respectively in this fiscal. Fiscal deficit of the central government is expected to more than double the budgeted amount. The majority of the fiscal slippage will be from the revenue side.

Fibre2Fashion News Desk (DS)

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