India's GDP to contract by 3% in FY21: BofA Securities

13 Jul '20

2 min read

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India's gross domestic product (GDP) will contract by 3 per cent in fiscal 2020-21 due the novel coronavirus pandemic, provided the economy is fully opened up starting next month, according to BofA Securities, which said the Reserve Bank of India (RBI) will monetise the fiscal deficit by purchasing government bonds of up to $95 billion through open market operations.

RBI’s revaluation reserves of $127 billion may also be used to recapitalise state-run banks, and if the crisis prolongs, the contraction may go up to 5 per cent, the US-based brokerage firm, earlier called Bank of America Merrill Lynch, said.

Its India economist Indranil Sen Gupta said his estimate is among the more optimistic ones and differs from others on the likelihood of the COVID-19 impact, which he said is a health emergency that no one can predict with certainty at present.

India's GDP growth decelerated to 4.2 per cent in 2019-20, the weakest in over a decade. Gupta said the growth potential is over 7 per cent, according to Indian media reports.

GDP growth will come in at 9 per cent in fiscal 2021-22 on the lower base, he said. For both the fiscals, the growth will come at an average of 3 per cent, which would mean that the COVID-19 pandemic has set Indian economy back by a year, he said.

The biggest strength for India at present is the over $500 billion in foreign exchange reserves that have been accumulated by the RBI over some months, and it is due to this kitty that the country is not being bracketed with other emerging economies by the markets at present, he said.

The rural sector also is a relatively bright spot because of better monsoons that will deliver a normal harvest for the summer crop and also the lesser instances of COVID-19 infections, he added, estimating the agriculture, forestry and fishing sector to clock 3.5 per cent growth.

However, on the flip side, India has a large population, limited healthcare infrastructure and has opened up the economy when the infection curve was rising, leading to tripling of cases in a month, he added, calling this as the biggest weakness at present.

Fibre2Fashion News Desk (DS)

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