India’s economy is likely to record the worst economic growth since the 1991 liberalization. India’s growth forecast cut by IMF, Barclays, World Bank, Moody’s and Fitch.
International Monetary Fund (IMF) has cut India’s growth forecast for FY21 in its World Economic Outlook (WEO) report from 5.8%, projected in January, to 1.9%. It said that the virus spread will throw the world economy into the worst recession. However, it said that India and China are the only two major economies that will witness growth while all others will contract. Further, it reported that the pandemic will contract the world output by 3% in 2020, much worse than the 2008-09 financial crisis.
Chief economist at IMF, Gita Gopinath endorsed social distancing, lockdown, and quarantine to contain the spread. Also, she said that India is likely to see recovery at 7.4% in FY22. However, the revival of the economy will depend on the efforts for controlling the pandemic and hence restoring consumers’ and investors’ confidence. Further, IMF noted India’s effort for using digital technologies for processing applications to deliver direct benefits to the citizens. Also, the IMF has estimated China’s economic growth at 1.2% in 2020 and 9.2% in 2021.
Need for Integrated Efforts
The WEO report called policymakers to implement targeted fiscal, monetary and financial market measures rather than broad-based measures to support the economy. Further, it urged the countries to work together on finding permanent solutions for the pandemic as no country is safe from it.
Barclays Growth Forecast
On the other hand, Barclays slashed India’s growth projections to zero from 2.5% earlier. Also, it has cut down India’s growth projection from 0.8 percent for FY 20-21 from 3.5 percent earlier. Citing the long lockdown, Barclays reported that the economic impact of the pandemic on India looks worse than expected.
Further, it predicted a loss of USD 234.4 Billion (8.1 percent of GDP), assuming a partial lockdown in India till May end. This is higher than its previous projections of USD 120 Billion loss. Further, it said that the lockdown is expected to end by early June which will be followed by modest recovery and inventory building in certain sectors. However, if the frenetic shutdown remains due to localized outbreaks then the country’s recovery predictions will continue to decline.
World Bank Reports on India’s Growth Forecast
World Bank, in its South Asia Economic Focus report, reveals that India is likely to grow 1.55% to 2.8% in 2020-21. Further, it predicted that India will grow 4.8 %to 5% in 2019-20. Also, it stated that disruptions in demand and supply due to lockdown will result in sharp growth deceleration in FY21 (April 2020 to March 2021).
Also, World Bank expects growth to rebound 5% in fiscal 2022 as the impact of COVID-19 will dissipate. World Bank reported that the green shoots which were seen at the end of 2019 have been overtaken by the negative impact of the pandemic. Further, they added that India’s outlook is not good as its just allotted 1% of the GDP for health infrastructure. The condition could worsen if the lockdown prolongs.
However, Chief Economist for South Asia Hans Timmer, stated that the situation brings an opportunity to bring India’s economy on a sustainable path. The World Bank has approved USD 1 billion to India to mitigate the effects of the COVID-19. Besides, it is working on the other two agendas focusing on employment, banking, and MSMEs in India.
Hans Timmer, Chief Economist for South Asia, stated that the government, firstly, must ensure that everybody has food. Then it must work on temporary job programs at local levels. After that, it should make an effort to prevent the bankruptcies of SMEs. Further, he appreciated the efforts of the Central Bank for its calibrated support. He said that if the early policy measures pay off, then restrictions could be lifted. However, in case the shutdown extends, the growth projections could revise 1.5%.
Moodys Growth Forecast
Moodys cut India’s GDP growth rate forecast from 5.3% to 2.5%. It projects a growth rate of 5% for the FY 2019. The cut has come after PM Modi ordered a nationwide lockdown to curb the spread of Coronavirus. However, it expects India’s economy to rebound to 5.8% in FY 2021. Further, it reported that while advanced economies will witness a contraction of 2%, the emerging economies will come down to 1.9%.
Fitch GDP Ratings
Fitch has cut India’s GDP growth rate forecast to 2% from 5.1%. This marks the slowest growth rate in the last 30 years. Further, it highlights that the MSMEs and the service sector will be the worst-hit sectors of the economy.
In all, the lack of social safety nets and the inability to provide adequate support in India. Along with no support to businesses in emerging economies it will add to the impact of Coronavirus pandemic.