Indian economy in deep trouble: S&P

Source: The Economic Times, Jun 26, 2020

NEW DELHI: S&P Global Ratings on Friday said Indian economy is in deep trouble with growth expected to contract by 5 per cent this fiscal.

“India’s economy is in deep trouble. Difficulties in containing the virus, an anemic policy response, and underlying vulnerabilities, especially across the financial sector, are leading us to expect growth to fall by 5 per cent this fiscal year before rebounding in 2021,” S&P said in a report.

In its report titled ‘Asia-Pacific losses near USD 3 trillion as balance sheet recession looms’, S&P projected the region’s economy to shrink by 1.3 per cent in 2020, but grow by 6.9 per cent in 2021.

This implies a loss nearing USD 3 trillion output over these two years.

“Asia-Pacific has shown some success in containing COVID-19 and, by and large, responded with effective macroeconomic policies,” said Shaun Roache, chief economist for Asia-Pacific at S&P Global Ratings.

“This can help cushion the blow and provide a bridge to the recovery. The recovery looks set to be weighed down by indebted balance sheets, however.” One risk now looming larger is yet another “balance sheet recession” in which at least one important sector of the economy — the government, firms, or households — tries to bolster its weak financial position by saving more, paying down debt, and spending less, S&P said.

“The downturn caused by COVID-19 did not start as a balance-sheet recession but may end up as one,” Roache said. “This means less investment, a slower recovery, and a permanent hit to the economy that will last even after a vaccine is found.”

The pandemic caused a sudden stop in activity and to prevent a collapse, policymakers, helped by banks, have provided extraordinary financial support to firms and households.

Banks may lend less than they normally would in a recovery to focus on the overhang from the pandemic. Private firms may prefer to stabilize debt rather than ramp up spending on new investments, even though demand is improving.

S&P Global Ratings kept its forecasts for growth in Chinese economy at 1.2 per cent and 7.4 per cent for 2020 and 2021, respectively.

The economy is healing but private sector confidence remains fragile. If private sector spending does not improve quickly, more stimulus may be unleashed, S&P said.

IMF scales down growth projection, says Indian economy will contract by 4.5% this fiscal

Source: Business Standard, Jun 24, 2020

New Delhi: The International Monetary Fund (IMF) has cut its projection for India as well as global growth. The agency estimates show that the Indian economy will contract this fiscal, but will bounce back smartly during the next fiscal.

“India’s economy is projected to contract by 4.5 per cent following a longer period of lockdown and slower recovery than anticipated in April,” IMF said in the latest update of ‘World Economic Outlook.’ Interestingly, IMF was among two or three agencies, which had estimated growth in its April outlook. At that time, it was projected that India will grow by 1.9 per cent during current fiscal.

This projection has come at a time when India is yet to see a peak of the Covid-19 virus. Although, the recovery rate is above 50 per cent and also the death rate is low, still the average number of positive cases is now 15,000 or more.

More significantly, metros such as Delhi, Mumbai and Chennai are witnessing sharp surge in the cases affecting the path of normalcy during first phase of nationwide opening up. The governments — both Central and States — have said repeatedly that there will be no further lockdown. But economic activities are still facing uncertainties.

Like various agencies, IMF too expects better days ahead. It projects growth of 6 per cent during the next fiscal. However, it is 1.4 percentage points lower than the April outlook.

Taking note of liquidity support under Atmanirbhar Bharat package, it feels that various sectors will gain from that.

“India has unveiled liquidity support (4.5 per cent of GDP) through loans and guarantees for businesses and farmers and equity injections into financial institutions and the electricity sector,” the report said.

Bleak global economy

Titled ‘A Crisis Like No Other, An Uncertain Recovery’, the update on World Economic Outlook projects global growth at (–) 4.9 per cent in 2020, which is 1.9 percentage points below the April forecast.

The pandemic has had a greater negative impact on activity in the first half of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. In 2021 global growth is projected at 5.4 per cent.

“Overall, this would leave 2021 GDP some 6½ percentage points lower than in the pre-Covid-19 projections of January 2020,” the report mentioned.

According to the report, strong multilateral cooperation remains essential on multiple fronts. Liquidity assistance is urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net.

Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the Covid-19 crisis.

Furthermore, building on the record drop in greenhouse gas emissions during the pandemic, policymakers should both implement their climate change mitigation commitments and work together to scale up equitably designed carbon taxation or equivalent schemes.

The global community must act now to avoid a repeat of this catastrophe by building global stockpiles of essential supplies and protective equipment, funding research and supporting public health systems, and putting in place effective modalities for delivering relief to the neediest, it said.

Economy may contract by over 40% in Q1: SBI Research

Source: The Economic Times, May 27, 2020

New Delhi: The Indian economy faces a ‘humongous’ loss in the June quarter and gross domestic product (GDP) could contract by more than 40% during the period, State Bank of India (SBI) Research said in a note. It expects another stimulus package later in the year to help shore up the economy. SBI Research estimates the economy will contract by 6.8% in FY21 after a ‘smart recovery’ in the second quarter and “much better” growth numbers in the third and fourth quarters. “We now believe Q1GDP FY21 loss will be humongous and could even exceed 40%,” it said on Tuesday, estimating second-quarter growth at 7.1% if demand recovers.

The first quarter will suffer a contraction of 25%, ratings agency Crisil said in a note on Tuesday, predicting India’s worst-ever recession. It sees GDP contracting 5% in FY21. International rating agency Fitch also downgraded India’s growth forecast. “Biggest forecast cut was to India where we now anticipate a 5% decline in the current financial year in contrast to an earlier forecast of growth of 0.8%,” the agency said in a statement late Tuesday. SBI Research expects Covid-19 infections to peak in the last week of June. “The good news is that Q2GDP growth in FY21could see a bump up because of a significant contraction in Q1GDP,” said SBI group chief economic adviser Soumya Kanti Ghosh.

However, he said that such a second-quarter bump due to pent-up demand can “rapidly degenerate in a low equilibrium with income and job losses acting as a drag on consumption”. “We thus believe the government might be looking at the data more closely to prevent such loss in momentum in Q3 and Q4 and even come up with another targeted package later in the year,”SBI Research said. The government has announced a Rs 20 lakh crore revival package for the economy but some experts have said the fiscal stimulus is only about Rs 2 lakh crore, or 1% of GDP. SBI Research has taken a bottom-up approach toward estimating GDP, reasoning states are now restarting economic activities in a staggered manner. It estimated the total loss to states due to Covid-19 at Rs 30.03 lakh crore, of which 90% was accounted for by red and orange zones, which mainly included urban areas.

On the state losses, it said the top 10 contributed to 75% of the total, with Maharashtra’s share at 15.6%, followed by Tamil Nadu at 9.4% and Gujarat at 8.6%. These states also had the highest number of Covid-19 cases. Infection numbers should drop after they peak in late June, it said. “We believe that new cases are likely to peak somewhere anytime in the last week of June, beginning June 20,” SBI Research said. “Following that the new cases are expected to witness steep fall till the beginning of August after which it is expected to flatten by mid-September.”

Experts fear massive 40% fall in April GDP, call for unlocking of economy

Source: Business Standard, May 07, 2020

New Delhi: Fearing a 40 per cent contraction in India’s gross domestic product (GDP) in April, experts have cautioned that India should not send out a signal that the lockdown is resulting in making it a controlled economy.

“There are some signals… the global markets are fearing that India is going to slide into a controlled economy which is very damaging,” said former Chief Economic Advisor Kaushik Basu at a webinar organised by the Institute of Economic Growth.

Naushad Forbes, former president of the Confederation of Indian Industry (CII) and co-chairman of Forbes Marshall, said his back of the envelope estimates indicate that the country’s GDP contracted 40 per cent in April. “Only agriculture, government services and telecom would have come through unaffected,” he said.

Basu said the first step that India took to arrest the spread of coronavirus was correct.

“We needed to get into discipline, we needed to follow rules. All those were correct, but we have to be careful here on because the language of the world is changing. People are now getting worried about the economic fall out,” said the professor of economics at Cornell University. “If the country does not take steps of unlocking properly, it despite possibilities may run into difficulties.” he said.

He clarified that unwinding does not mean that you open up everything. “You have to have rules on large gatherings. Buses needed to be half full with open windows,” he said.

However, the country has to start factories, firms and allow mobility. “If we don’t do these things, the blow on the economy will be so crushing that we would not be able to handle it if it comes in the full swing,” he said.

Some top economists have suggested providing cash and food subsidies, he said, adding he agreed to that. “But beyond a point, if you have closed economy and the government gets to distribute items to people through rules and regulations, you will not succeed. You have to allow space for the markets. Suddenly trying to replace markets with bureaucrats giving orders, and police and people carrying out those orders, you will not succeed,” he cautioned. Basu said Vietnam, Hong Kong, Taiwan and Mexico are positioning themselves to get more businesses. “We need an exit strategy (from lockdown). We need to create space for the private sector, small industries. If we give that signal right, I think we will come out of it actually better,” he added.

CRISIL pegs India’s FY21 economic growth rate at 1.8% from 3.5%

Source: Business Standard, Apr 28, 2020

New Delhi: Domestic rating agency CRISIL on Monday cut its projections for India’s economic growth rate to 1.8 per cent, from 3.5 per cent it had earlier predicted for 2020-21.

Its parent Standard & Poor’s has (S&P) forecast the world economy to contract 2.4 per cent, against its earlier estimates of 0.4 per cent growth. CRISIL had a gross domestic product (GDP) growth estimate of 6 per cent for 2020-21 (FY21), which was revised to 3.5 per cent in late March. Among the major economies, India and China are the only exception to the declining economic activities in 2020 or FY21 in India’s case. The agency projected total losses of Rs 10 trillion or Rs 7,000 per person due to the “disastrous” lockdowns to control the Covid-19 pandemic.

CII pegs GDP growth between -0.9% & 1.5%

Source: The Economic Times, Apr 24, 2020

New Delhi: India’s gross domestic product (GDP) could marginally expand 1.5% or even contract 0.9% in this financial year, the Confederation of Indian Industry (CII) said in a report and suggested several measures to address the economic challenges posed by the Covid-19 pandemic. The industry body sought urgent stimulus including creation of a fund to be used for subscribing to corporate bonds and credit protection scheme for micro, small and medium enterprises (MSMEs).

“Given the extent of the damage to the economy from the disruption to business, the GDP growth in FY21will likely be the lowest in many decades… government intervention becomes critical not only to sustain the economy but also to prevent any humanitarian crisis,” said Chandrajit Banerjee, director general, CII.

The CII suggested a comprehensive economic recovery plan which includes short-term stimulus measures and medium-term structural reforms. From additional working capital limits for enterprises to more direct benefit transfers to Jan Dhan accounts, it urged the government to take further steps to provide relief to all sections of the economy.

India to grow at 1.9% in FY21, recover to 7.4% path in 2021-22: IMF

Source: Business Standard, Apr 15, 2020

New Delhi: The International Monetary Fund (IMF) has cut its projection of India’s economic growth to 1.9 per cent for the current financial year, the lowest since the 1991 balance of payments (BoP) crisis. It had earlier forecast a growth rate of 5.8 per cent.

This revision was done in light of the impact of the coronavirus disease (Covid-19), and the subsequent nationwide lockdown imposed by the central government to check the spread of the virus.

However, the projection is not low comparatively, given the fact that the global economy is projected to contract 3 per cent against a growth of 3.3 per cent expected earlier.

IMF chief economist Gita Gopinath said, “The output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis”.

In its World Economic Outlook (WEO), published a day ahead of the start of the spring meetings of the World Bank and the Fund on Tuesday, the multi-lateral agency expected India to recover to 7.4 per cent growth in financial year 2021-22 (FY22).

This is not surprising because the global economy is also projected to grow by 5.8 per cent in 2021. It is based on IMF’s baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound. For FY20, IMF expected India’s economy to grow at a slower pace at 4.2 per cent, rather than the 5 per cent projected by the second advance estimates.

IMF’s projection of 1.9 per cent growth rate for India in the current financial year is 0.4 percentage points higher than the lower range of forecasts by the World Bank, which expected India’s economy to grow in the range of 1.5-2.8 per cent in FY21, depending on when the lockdown is lifted. The last time India’s expansion was lower was back in FY92 when it fell to 1.1 per cent, and prompted the then PV Narasimha Rao government to unleash economic liberalisation.

Other agencies have been conflicted on India’s future trajectory.

While Nomura predicted the economy to contract by 0.5 per cent during 2020, the Asian Development Bank expected it to grow 4 per cent in FY21.

If IMF’s projections come true, India, having lost the tag of the fastest growing large economy to China in FY20, will regain it in the current financial year, only to lose it again in FY21. This is because China is projected to grow at 6.1 per cent in 2019, 1.2 per cent in 2020 and a whopping 9.2 per cent in 2021.

Gopinath said the world had changed dramatically in the three months since the Fund’s last WEO update in January.

“A pandemic scenario had been raised as a possibility in previous economic policy discussions, but none of us had a meaningful sense of what it would look like on the ground and what it would mean for the economy. We now encounter a grim reality, where exponential growth of contagion means 100 infected individuals become 10,000 in a matter of a few days,” she said.

IMF projected emerging Asia — which includes China, India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam — to be the only region with growth in 2020 (1 per cent), albeit over 5 percentage points below the previous decade’s average for the countries.

World Bank slashes India’s growth projection to 1.5-2.8% for this fiscal

Source: The Hindu Business Line, Apr 12, 2020

New Delhi: The Indian economy is expected to slow down this fiscal (2020-21) with growth rate in the 1.5-2.8 per cent range, said a World Bank report on Sunday. However, the good news is that the next fiscal — 2021-22 or FY22 — is expected to see a growth reversal.

The GDP (Gross Domestic Product) growth rate is estimated at 5 per cent or even lower during fiscal year 2019-20, which ended on March 31.

The World Bank’s report on South Asia noted that the Indian government imposed a lockdown on March 25 to contain the spread of Covid-19. “The resulting domestic supply and demand disruptions (on the back of weak external demand) are expected to result in a sharp growth deceleration in FY21 to 2.8 per cent in a baseline scenario (an estimate subject to wide confidence intervals),” it said. The lockdown brought almost 70 per cent of economic activities to a standstill. An SBI research report estimated that the first 21 days of the lockdown could result in losses of over ₹8-lakh crore.

The services sector will be particularly impacted by the lockdown, the World Bank report said. A revival in domestic investment is likely to be delayed, given the enhanced risk aversion on a global scale, and renewed concerns about financial sector resilience. The services sector is the biggest contributor to the GDP with over 54 per cent share, followed by industries with 30 per cent and agriculture with 16 per cent.

“Growth is expected to rebound to 5 per cent in FY22 as the impact of Covid-19 dissipates, and fiscal and monetary policy support pays off with a lag,” the report said.

Fiscal deficit to widen

Talking about fiscal deficit, it said that the general government deficit (difference between income and expenditure) is anticipated to rise, owing to recently adopted tax cuts and the impact of significantly slower growth of tax proceeds, before moderating towards the end of the forecast horizon. “The combined fiscal deficit of the Centre and the States is projected to widen to 9 per cent in FY21, as revenue performance dips with the growth slowdown and expenditure commitments increase in line with the stimulus programme announced.

Thereafter, it should improve gradually,” it mentioned. However, the current account deficit (difference between payment received and made in US dollar) will improve.

“The balance of payments position is expected to improve. Weak domestic demand, low oil prices and Covid-19-related disruptions are expected to narrow the current account deficit to 0.2 per cent in FY21 and keep it low in the following years,” the report said.

The report added that the pandemic has magnified pre-existing risks to the outlook.

Risks and challenges

The government is undertaking measures to contain the health and economic fallout, and the RBI has begun providing calibrated support in the form of policy rate cuts and regulatory forbearance.

Given the uncertainties, there is a wide confidence interval around the baseline estimate. If a large-scale domestic contagion scenario is avoided, early policy measures pay off, and restrictions on the mobility of goods and people are lifted swiftly, an upside scenario could materialise in FY21, with growth around 4 per cent. However, “if the domestic contagion is not contained, and the nationwide shutdown is extended, growth projections could be revised downwards to 1.5 per cent, and fiscal slippages would be larger.”

Goldman Sachs cuts India GDP estimate to 1.6%

Source: The Hindu Business Line, Apr 08, 2020

Mumbai: Goldman Sachs has made the steepest revision to its forecast of India’s GDP for financial year 2021 to 1.6 per cent from 3.3 percent previously. The GDP of India would be slower than what India experienced in 1970s, 1980s and 2009, all the years when economy contracted significantly, Goldman Sachs said.

The global research house has cut global GDP growth to negative -1.8 per cent, which is a sharp over 5 per cent downward revision since its estimates made in the the beginning of the year.

“The 1.6 per cent growth for FY21 would be deeper compared to widely perceived “recessions” India experienced in the 1970s, 1980s, and in 2009. Notably, as our global team has argued, the global COVID-19 crisis — or more precisely, the response to that crisis — represents a physical (as opposed to purely financial) constraint on economic activity that is unprecedented in postwar history,” Goldman said.

After a nationwide lockdown was imposed on March 25 to stop the spread of Covid-19 virus, economic activity mainly India’s import, export came to a virtual standstill.

Prior to the lockdown domestic stock market benchmark indices Sensex and Nifty crashed by more than 20 per cent in March alone. The fall was so sharp market regulator SEBI had to impose restrictions on naked short selling in the equity derivatives segment. The World Bank, however, has said that India will not see recession due to strong domestic demand.

“In India, the spread of the virus, announcements of a nationwide shutdown from March 25, social distancing measures, and fears among consumers and businesses, have all escalated sharply over the past two weeks. High frequency data, as well as anecdotal evidence, although still limited, suggest a significant contraction in economic activity,” Goldman said.

“In India, the spread of the virus, announcements of a nationwide shutdown from March 25, social distancing measures, and fears among consumers and businesses, have all escalated sharply over the past two weeks. High frequency data, as well as anecdotal evidence, although still limited, suggest a significant contraction in economic activity,” the research note added.

Goldman Sachs said that over the past two weeks, their global team was forecasting the world to be in a recession in 2020, with risks remaining on the downside.

“We have downgraded our global GDP forecast to -1.8 per cent in 2020, more than 5 per cent point downward revision since early this year, and a roughly 3 per cent point downward revision since our last published India growth forecast update on March 22. For the United States, we have downgraded our growth forecast to -6.2% in 2020 (from -3.7 per cent earlier.”

We continue to expect a strong sequential recovery in the second half of the fiscal year, based on three assumptions. First, the 3-week nationwide lockdown, which is expected to be removed only in a staggered fashion, and social distancing measures reduce new infections over the next 4-6 weeks. Second, while the fiscal easing so far has been limited, our expectation is for further fiscal stimulus by the center and the states. Third, we expect the RBI to continue with its monetary easing policy, along with liquidity infusion measures.

While more forceful policy support could present some upside risk, the recovery could further be delayed if the pandemic is not brought under control globally and domestically over the next few months.

India’s growth may slip below 3% in FY21 if COVID-19 proliferates: KPMG

Source: The Economic Times, Apr 06, 2020

New Delhi: India’s growth could slip below 3 per cent in the current fiscal if COVID-19 proliferates within India, lockdown extended and global economy slips into recession, a KPMG report said.

It said the three major contributors to GDP — private consumption, investment and external trade — will all get affected due to the spread of the pandemic.

The KPMG report presented three scenarios to explain the economic effects of COVID–19. In the scenario of quick retraction across globe by April-end to mid-May, the report said “India’s growth for 2020-21 may be in the range of 5.3 to 5.7 per cent, though this scenario looks distant at this moment”.

In the second scenario where India is able to control COVID-19 spread, but there is a significant global recession, the KPMG report said India’s growth is expected to be in the range of 4-4.5 per cent.

However if the pandemic proliferates and there is global recession then it would be a double whammy for the economy as it will have to bear the brunt of both domestic and global demand destruction, KPMG report said.

“Prolonged lockdowns would exacerbate economic troubles. India’s growth may fall below 3 per cent under this scenario,” it added.

These growth projections compare to an estimated 5 per cent growth rate in 2019-20.

The report said steps taken to contain the virus spread such as the nationwide lockdown have brought economic activity to a near-standstill, with impacts on both consumption and investment.

“While Indian businesses, barring a few sectors, can possibly insulate themselves from the global supply chain disruptions caused by the outbreak due to relatively lower reliance on intermediate imports, their exports to COVID-19 infected nations could take a hit,” it said. JD BAL BAL