Economy Heading Towards Recession Despite Reopening

India reopens the economy after an extended two-month lockdown. However, it is unlikely for businesses to return to normal as India’s economy heading towards recession despite reopening.

GDP Contraction

The price which small enterprises will pay as an effect of the lockdown has started to become apparent. India’s economic growth came down to 3.1% in the last quarter of the fiscal year 2019-20. The data released by the department of statistics revealed that growth is the slowest in 11 years. The GDP grew by 4.2% in FY 2019-20 as compared to 6.1% the previous year.

Experts Forecast on Indian Economy

The shutdown has hit the Indian economy to the extent that the economists are finding it difficult to make a recovery forecast. Dharmakirti Joshi, the chief economist at Crisil Ltd, said that the pre-crisis level of GDP growth would be difficult in the next three fiscal years even with the policy support. Further, he added that the economy needs to grow at 11% over the next three fiscals to catch-up.

S&P Global Ratings estimates a permanent loss of 10% to the GDP with an average growth of about 7% in fiscal years 2022 and 2024. Further, Fitch forecasts a 5% contraction of the economy in 2020-21, a sharp decline from 0.8% growth projected in late April. The Bloomberg economists’ survey estimated 1.9% contraction in GDP throughout 2021 and a rebound to 7.1% next year. The rate may seem attractive after a global crisis; however, it is not enough to generate 10-12 million jobs every year. 

Businesses will Find it Hard to Remain Solvent

Kaushik Das, the chief India economist at Deutsche Bank, expects real GDP to contract by more than 6% in FY21. It will follow a slight recovery after that in FY22. Further, he revealed that the economy is unlikely to see a V-shaped recovery in the next six months as businesses will find it difficult to remain solvent, and some will see a collapse in profits.

Hard Recovery 

Apart from this, former finance secretary Subhash Chandra Garg said that India’s GDP would contract by 20 lakh crore in the current fiscal due to the COVID-19. Also, Rajiv Bajaj, Managing Director, Bajaj Auto, criticised the government’s efforts in a virtual interaction with Rahul Gandhi. He said that the government had flattened the wrong curve as the pandemic is not yet contained despite porous lockdown.

In all, the Indian economy, which was already reeling with a slowdown, may see the worst recession in at least four decades with a contraction of 5% in FY21. 

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