India’s economy in shambles, headed for a double-digit decline

COVID cases cross 5 million in India; Goldman Sachs foresees 14.8% GDP contraction for 2020-21. Global institutions bring down India’s growth projections to historic lows.

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India’s economy in shambles, headed for a double-digit decline. the policy times

As India emerges to be the new global hotspot for COVID-19 with 54, 85,612 cases till 21 September, the economy struggles to sustain itself. Global institutions and economists are speculating a poor future for India’s economic growth as all trends point towards negative. The Asian Development Bank (ADB) has cut down India’s growth projections even further, after already estimating the historic lows. For the financial year March 2021, Goldman Sachs estimates a contraction in the GDP by 14.8%, while the ADB is speculating a growth of -9%. The Organization for Economic Co-operation and Development expects a contraction of 10.2%.

Lockdowns and phases of unlock

The economists believe that India’s failure to contain the virus will once again bring down all business activists that had been resumed after the months-long lockdown since March – one of the strictest the world had seen. While the infections rise over 5 million chasing the USA for the first place in the global ranking of COVID-19 cases, the death toll is only surpassed by Brazil and the US.  Sunil Kumar Sinha, principal economist at India Ratings and Research Ltd. now speculates the GDP contraction to be 11.8% in the fiscal year, crossing his own earlier projection of 5.8%. He said, “While a second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve.”

Slow potential growth

All eyes are awaiting the release of the Central Bank’s growth forecast on 1st October when the monetary policy committee will also announce its final interest rate decision. In August, the RBI had said that discretionary expenses on transportation, hospitality, recreation and cultural activities had taken a major hit due to COVID-19. This fall in the GDP while the banking and other financial sectors are already struggling, will curb India’s medium-term growth potential.

What are the economists saying?

The GDP and other growth potential of India were already on the decline when the country went into lockdown and the pandemic. The Bloomberg economists also expect a contraction of 10.6% in the fiscal year 2021, a rebound in 2022 and slow growth potential as the recession due to the virus continues to haunt for the rest of the decade.

Kaushik Das, chief economist at Deutsche Bank AG in Mumbai seemed optimistic about India’s future as he downgraded his estimates of GDP contraction from 8% to 6.2%. He said that India is “likely to see a shallow and delayed recovery in corporate sector profitability over the next several quarters. This will reduce the incentive and ability for fresh investments, which in turn will be a drag on credit growth and overall real GDP growth.”

Recommendations by the Policy Times

  • After the strict lockdown was lifted, there were some signs of revival, but the bigger picture still remains unclear.
  • There is no denial to the fact that India’s lockdown will be remembered as the greatest failure of the lockdown attempts by any major country because the cases are on a constant increase and the lockdown mitigated more damage than good, considering the migrant crisis and loss of jobs.
  • The economy will continue to decline further if the government and the financial bodies do not take any immediate action or even acknowledge the ongoing crisis.
  • The corporate profits have collapsed in the country, which means there are no investments, leading to no employment or growth.
  • Foreign investors can save the economy of the country if only it relaxes some of its trade policies.
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India’s economy in shambles, headed for a double-digit decline
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COVID cases cross 5 million in India; Goldman Sachs foresees 14.8% GDP contraction for 2020-21. Global institutions bring down India’s growth projections to historic lows.
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THE POLICY TIMES
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