India in historic technical recession, signals RBI in its first-ever nowcast

Source: The Economic Times, Nov 12, 2020

India’s economy probably shrank for a second straight quarter, according to a team of economists including Michael Patra, the central bank’s deputy governor in charge of monetary policy, pushing the country into an unprecedented recession.

Gross domestic product contracted 8.6% in the quarter ended September, the Reserve Bank of India showed in its first ever published ‘nowcast,’ which is an estimate based on high-frequency data. The economy had slumped about 24% in April to June.

“India has entered a technical recession in the first half of 2020-21 for the first time in its history,” the authors wrote. The government is due to publish official statistics November 27.

The Reserve Bank’s number is buoyed by cost cuts at companies that boosted operating profits even as sales dipped. The team of authors also used a range of indicators from vehicle sales to flush banking liquidity to signal brightening prospects for October. If this upturn is sustained, the Indian economy will return to growth in the October-December quarter, earlier than projected by Governor Shaktikanta Das last month, when he pledged to keep monetary policy accommodative.

However, “there is a grave risk of generalization of price pressures, unanchoring of inflation expectations feeding into a loss of credibility in policy interventions,” the team of economists wrote in the Reserve Bank’s bulletin. They also highlighted risks to global growth from a second wave of coronavirus infections.

“Lurking around the corner is the third major risk — stress intensifying among households and corporations that has been delayed but not mitigated, and could spill over into the financial sector,” the economists concluded. “We live in challenging times.”

IMF sees India’s GDP shrink 10.3%

Source:, Oct 14, 2020

The International Monetary Fund (IMF) on Tuesday forecast India’s gross domestic product (GDP) to contract 10.3% in FY21, in a downward revision of its June forecast of a 4.5% drop, reflecting the worse-than-anticipated contraction in economic activity in the fiscal first quarter due to the nationwide lockdown, as well as the rapidly-spreading pandemic.

In its biannual World Economic Outlook, IMF said all emerging market and developing economy regions are expected to shrink this year, including notably emerging Asia, where large economies such as India and Indonesia continue to try to bring the pandemic under control.

“Revisions to the forecast are particularly large for India, where GDP contracted much more severely than expected in the second (June) quarter. As a result, the economy is projected to contract by 10.3% in 2020, before rebounding by 8.8% in 2021,” it added.

IMF said the June quarter GDP was weaker than projected in India, where domestic demand plunged following a very sharp compression in consumption and a collapse in investment.

India’s GDP shrank 23.9% in the June quarter, making it the worst performer among G20 economies. The Reserve Bank of India on Friday admitted, for the first time, that India’s economy will contract 9.5% in FY21, with a mild expansion in the March quarter.

The multilateral lending body, however, said global growth may see less severe contraction at -4.4% in 2020 than it envisaged in June (-5.2%), reflecting better-than anticipated June-quarter GDP growth in advanced economies, where activity began to improve sooner than expected, indicating a stronger recovery in the September quarter.

“The ascent out of this calamity is likely to be long, uneven and highly uncertain. It is essential that fiscal and monetary policy support are not prematurely withdrawn, as best as possible,” IMF chief economist Gita Gopinath said.

Without naming India, Gopinath said emerging market and developing economies are managing this crisis with fewer resources, as many are constrained by elevated debt and higher borrowing costs. “These economies will need to prioritize critical spending for health and transfers to the poor and ensure maximum efficiency. Where debt is unsustainable, it should be restructured sooner than later to free up finances to deal with this crisis,” she added. IMF warned covid will reverse the progress made since the 1990s in reducing global poverty and will increase inequality. “People who rely on daily wage labour and are outside the formal safety net faced sudden income losses when mobility curbs were imposed. Close to 90 million could fall below the $1.90 a day income threshold of extreme deprivation this year,” it added.

GDP contraction in Q2 likely to have slowed to 12%, recovery will be patchy, say economists

Source: The Economic Times, Sept 28, 2020

NEW DELHI: India’s economy may have contracted at a slower pace in the September quarter compared with the preceding three-month period, said economists surveyed by ET, pegging it a median 11.95%. They warned that the recovery will be patchy and uncertain though the worst may be over.

They called for a strong fiscal package to boost demand and even suggested monetisation if the bond market could not support a borrowings-funded stimulus. High Covid-19 cases and localised lockdowns to contain the spread are dampening demand, according to most of the respondents in an ET poll of 10 economists.

India’s real gross domestic product (GDP) could have contracted 8-15.6% in the second quarter of FY21, they said. Nominal growth is seen shrinking around 7.5-9.5% in the quarter.

“We can say the worst is behind us,” said Kotak Mahindra Bank economist Upasna Bhardwaj. “While there is a reasonable bounce back with consumer durables, electricity, trade and transport, and some subsectors of manufacturing doing well, the recovery will be patchy, uncertain and uneven.”

India’s economy shrank 23.9% in the June quarter because of the Covid-19 pandemic and the lockdown that followed

Catch-up in industrial activity

The contraction was the most among the big economies.

The country is on course for the first full-year contraction of GDP in over four decades in FY21 even though the economy may do better in the second half. “Stringency of the lockdown has eased since April-May. However, with over 90% of the infection case load built-up since late-June, the reopening process has been uneven, delaying a return to pre-pandemic levels,” said Radhika Rao, economist, DBS Bank, pencilling in 13% contraction in the September quarter.

Much like the April-June quarter, non-agricultural sectors are likely to drive contraction in the second quarter. However, a catch-up in industrial activity and partial restart in construction could see these sectors contracting less steeply than services.

Agriculture had grown 3.4% in April-June against 39.3% and 50.3% contraction in manufacturing and construction, respectively.

HDFC Bank expects GDP to contract 10% in Q2 on account of continued supply disruptions and a slowdown in the pace of recovery in July as states re-imposed lockdowns.

India has surpassed Brazil to become the country with the second highest number of coronavirus cases after the US. The country’s daily case count had crossed 97,800 on September 16, but has declined since.

High-frequency indicators such as the index of industrial production (IIP), fuel demand, mobility, and e-way bills improved on a monthly basis but are still far below last year’s levels.

Passenger vehicle sales returned to positive territory in August after nine straight months of decline, rising 14.16%. “Manufacturing and some part of services have normalised faster than others. We expect an L-shaped recovery in the near term,” said DK Joshi, chief economist at Crisil. He expects a contraction in the third quarter as well and the year ending with a small positive growth in the fourth quarter.

Most economists called for measures to boost demand and lift employment though they did not expect a fiscal boost from the government.

“We expect limited support from government capex spending given the stressed fiscal situation and muted private capex,” said Sakshi Gupta, senior economist at HDFC Bank.

Indian economy staring at double-digit decline as Covid-19 cases spike

Source: Business Standard, Sept 18, 2020

India’s economic recovery prospects have gone from bad to worse after the nation emerged as a new global hotspot for the coronavirus pandemic with more than 5 million infections.

Economists and global institutions like the Asian Development Bank have recently cut India’s growth projections from already historic lows as the virus continues to spread.

Goldman Sachs Group Inc. now estimates a 14.8% contraction in gross domestic product for the year through March 2021, while the ADB is forecasting -9%. The Organisation for Economic Co-operation and Development sees the economy shrinking by 10.2%.

The failure to get infections under control will set back business activity and consumption — the bedrock of the economy — which had been slowly picking up after India began easing one of the world’s strictest and biggest lockdowns that started late March. Local virus cases topped the 5 million mark this week, with the death toll surpassed only by the U.S. and Brazil.

“While a second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve,” said Sunil Kumar Sinha, principal economist at India Ratings and Research Ltd., a unit of Fitch Ratings Ltd. He now sees India’s economy contracting 11.8% in the fiscal year, far worse than his earlier projection of -5.8%.

Goldman Sachs’s latest growth forecast came last week after data showed gross domestic product plunged 23.9% in the April-June quarter from a year ago, the biggest decline since records began in 1996 and the worst performance of major economies tracked by Bloomberg.

While there are some signs that activity picked up following the strict lockdown, a strong recovery looks uncertain.

“By all indications, the recovery is likely to be gradual as efforts toward reopening of the economy are confronted with rising infections,” Reserve Bank of India Governor Shaktikanta Das told a group of industrialists Wednesday.

Lower Potential

The central bank will likely release its own growth forecast on Oct. 1 when the monetary policy committee announces its interest rate decision. In August, the RBI said private spending on discretionary items had taken a knock, especially on transport services, hospitality, recreation and cultural activities.

The plunge in GDP, as well as ongoing stress in the banking sector and among households, will curb India’s medium-term growth potential. Tanvee Gupta Jain, an economist at UBS Group AG in Mumbai, estimates potential growth will slow to 6% from 7.1% year-on-year estimated in 2017.

What Bloomberg’s Economists Say

India went into the Covid-19 pandemic already suffering a downward trend in growth potential. We expect a 10.6% contraction in fiscal 2021, rebound in 2022, and slower path for growth as scars from the virus recession drag on the remaining years of the decade.

Abhishek Gupta, India economist

In addition to that, corporate profits have collapsed, putting a brake on investments, which in turn, will curb employment and growth in the economy. India is “likely to see a shallow and delayed recovery in corporate sector profitability over the next several quarters,” said Kaushik Das, chief economist at Deutsche Bank AG in Mumbai, who has downgraded his fiscal year growth forecast to -8% from -6.2%. That will “reduce the incentive and ability for fresh investments, which in turn will be a drag on credit growth and overall real GDP growth,” he said.

FY21 GDP to contract 11.8%; growth to rebound to 9.9% in FY22: India Ratings

Source: Financial Express, Sept 08, 2020

Domestic rating agency India Ratings and Research on Tuesday revised downward the country’s FY21 GDP growth forecast to (-) 11.8 per cent, lowest in Indian history, from an earlier estimate of (-) 5.3 per cent.

The agency, however, expects the economy to grow at 9.9 per cent in FY22 helped mainly by the weak base of FY21.

India Rating’s FY21 GDP growth forecast of negative 11.8 per cent will be the lowest GDP growth in the Indian history (GDP data is available from FY-1951) and sixth instance of economic contraction, others being in FY-1958, FY-1966, FY-1967, FY-1973 and FY-1980.

The previous lowest was negative 5.2 per cent in FY-1980, the rating agency said in a report.

It estimates economic loss in FY21 to be Rs 18.44 lakh crore.

In the April-June quarter of FY21, GDP grew at (-) 23.9 per cent. It is the first contraction in quarterly GDP data series which have been made available in the public domain since the first quarter of FY-1998.

According to the agency’s principal economist Sunil Kumar Sinha, none of the quarters in the current fiscal are going to witness a positive rate of growth.

For that (positive growth), we will have to wait for the fiscal year 2022. And in FY22, it is not going to happen in the first or the second quarter. It will probably happen in the third or the fourth quarter he said while addressing a webinar.

The agency said the economic disruption caused by COVID-19 has had a telling impact, not only on the economy but also on jobs and livelihoods. However, it has been more pronounced in the unorganised sector, leading to huge reverse migration.

Although there is some evidence of migrant workers returning to urban areas, the process is likely to be slow. Private final consumption expenditure growth therefore is now estimated to clock negative 12.8 per cent, down from the earlier estimate of negative 5.1 per cent, it said.

The only bright spot from the supply side is agriculture, as both industry and services activities have been severally impacted, it said. The agriculture sector is expected to grow at 3.5 per cent year-on-year (YoY) in FY21.

The rating agency, however, said GDP is expected to rebound and grow at 9.9 per cent YoY in FY22 mainly due to the weak base of FY21.

The base effect will certainly play out. The recovery will happen but it will not be that strong. On the real GDP basis, it is only in the fourth quarter of the next fiscal we expect that the size of the economy will be bigger than the fourth quarter of FY20, the agency’s chief economist Devendra Kumar Pant, said.

The agency now forecasts the central government fiscal deficit to increase to Rs 15.17 lakh crore in FY21 (FY21 (BE): Rs 7.96 lakh crore, FY20 (provisional): Rs 9.36 lakh crore).

Fiscal deficit is going to be higher than what is budgeted. Our estimate is that it will be 8.2 per cent in the current fiscal. The economic activities are not happening and also the entire world is passing through a similar situation. Neither the exports nor the imports are really happening, Sinha said.

According to Sinha, monetisation of the fiscal deficit will be the last resort for the government.

They would not like to use it as a first or second choice, it will be the last choice when they will run out of all the options, he said.

In the wake of both weak global and domestic demand conditions, the agency expects the country’s current account to record a surplus of USD 8.4 billion (0.3 per cent of GDP) in FY21 (FY20: deficit of USD 24.7 billion, negative 0.9 per cent of GDP).

The retail and wholesale inflation is estimated to be at 5.1 per cent and (-) 1.7 per cent, respectively, in FY21, it said. Inflation in FY21 will be largely governed by monsoon rainfall, which was 9 per cent above normal as on September 2, 2020; global commodity prices especially crude oil and monetary/fiscal policy pursued by the RBI/government to mitigate COVID-19 impact, the agency said.

IMF validates India’s GDP as worst in G-20

Source:, Sept 3, 2020.

Amid a row over whether India’s gross domestic product (GDP) contracted the most among major economies in the June quarter, International Monetary Fund (IMF) chief economist Gita Gopinath on Wednesday tweeted a graph which showed India’s internationally comparable quarter-on-quarter GDP shrank the most among G-20 countries at 25.6%.

India reports its GDP growth by comparing its level a year ago (year-on-year) which showed the economy dipped 23.9% in the June quarter. Mint was the first to point out on Monday that India’s GDP contraction could be one of the worst among G-20 countries. “In #GreatLockdown Q2 (June quarter) 2020 GDP growth at historical lows. Graph puts G20 growth numbers on a comparable scale, quarter-on-quarter non-annualized. Should expect rebounds in Q3 (September quarter) but 2020 overall will see major contractions. China recovers strongly in Q2 after collapse in Q1 (March quarter),” Gopinath said in her accompanying tweet with the graphics.

Government debt set to hit historic high of 91% of GDP in FY21, according to report

Source: The Economic Times, Aug 26, 2020

Mumbai: General government debt — which is the combined liabilities of the Centre and states — is likely to hit a record 91 per cent of GDP this fiscal, a brokerage report said on Wednesday. This will be the highest in record since data began to be maintained in 1980.

General government debt-to-GDP ratio stood at 75 per cent in FY20, as per the report by economists of Motilal Oswal Financial Services.

The debt ratio is likely to be at a high 80 per cent by FY30 and is unlikely to fall to the targeted 60 per cent even by FY40 without further hurting growth, it added.

The government’s capital outlays have been playing a bigger role in the overall economic growth for the past many years.

At the same time, since FY16, government debt has also been rising continuously.

Government debt stood at 66.4 per cent of GDP in FY 2000 and 66.6 per cent in FY15. Since then, it has been heading north at a faster pace, reaching 75 per cent in FY20.
The report says unless private spending picks up strongly, real GDP growth over the next decade will be slower, averaging at 5-6 per cent as against 7 per cent in the 2010s.

“The combined general government debt rose to 75 per cent of GDP in FY20 from 70 per cent in FY18. It is likely to reach 91 per cent of GDP in FY21, which is the highest since 1980 when data was made available and will stay at above 90 per cent of GDP up to FY23, before moderating slowly to 80 per cent by FY30,” the report said.

A surge in public debt will restrict the government’s ability to spend significantly in the current decade, as it has done in the past few years, it said.

While real GDP growth averaged at 6.8 per cent between FY14 and FY20, real fiscal spending grew at an average of 9 per cent during the period.

“Since a large part of non-interest revenue spending like defence, salaries and pensions is fixed, there is a high possibility fiscal investment will grow at an even slower rate in the current decade,” it added.

Moody’s: India’s GDP to slide to -3.1% in FY21

Source: Financial Express, Aug 26, 2020

Global rating agency Moody’s on Tuesday retained its earlier India growth forecast at -3.1% for FY21 and 6.9% for FY22, lending some credence to the view that the economy could witness a “V-shaped recovery” next fiscal.

China, India and Indonesia will be the only G-20 emerging economies to witness a strong enough pickup of real GDP in the second half of 2020 and full-year 2021 to end next year above pre-coronavirus levels, it said in its latest Global Macro Outlook for 2020-21.

It said an economic recovery is underway, but its continuation will be closely tied to containment of the virus. “Economic data show a quick rebound in goods consumption in a number of advanced economies. However, pandemic fears will continue to hinder a complete recovery,” it added.

The agency has projected a 4.6% contraction for G-20 economies in 2020, followed by 5.3% growth in 2021. With the exception of China, which is predicted to record 1.9% growth in 2020 despite the pandemic, Moody’s expects economic activity in every G-20 economy to fall this year. Coronavirus-related supply problems have led to a rise in food prices in several emerging market countries, such as Brazil, China, India, Mexico, Turkey and South Africa, Moody’s said. However, it’s a temporary phenomenon, and “we expect the current shock to be disinflationary overall”. “The scale and scope of fiscal accommodation differ widely, with advanced economies having provided far more robust policy response than most emerging market countries,” it said.

Nomura estimates India’s GDP to contract by 6.1% in FY21, sees no rate cut in August

Source: The Economic Times, Jul 21, 2020

Economic activity continues to remain weak and will lead to a 6.1 per cent contraction in India’s GDP in the current fiscal, a foreign brokerage said on Tuesday.

The Reserve Bank is likely to pause at the upcoming policy review in August and cut rates by 25 basis points each in the October and December reviews, Japanese brokerage Nomura said in a report.

All the analysts expect a contraction in the GDP due to the COVID-19 pandemic, which has impacted both supply and demand forces in the economy since March. Official data also suggests a surge in inflation, which will further drag down the GDP in real terms.

Nomura said the June quarter will be the ‘nadir’ from a growth perspective and the economy will contract by 15.2 per cent and the GDP will never come into the positive territory in the remaining part of this fiscal.

It estimated contractions of 5.6 per cent in September quarter, 2.8 per cent for December quarter and 1.4 per cent in the March quarter, which will give a full fiscal GDP at negative 6.1 per cent.

“Overall, aggregate demand continues to lag aggregate supply, especially due to weak services activity and subdued urban consumption demand,” it said.
Demand has taken a larger hit from the lockdown, likely reflecting higher precautionary savings by consumers amid rising income uncertainty. In contrast, the supply side is constrained only to the extent mandated by the rules, it said.

The brokerage said the growth estimates are arrived at after analysing ‘ultra’ high frequency indicators such as various mobility indices, employment and electricity demand to glean the direction of the growth trajectory.

On the monetary policy front, it said the RBI, which has already cut rates by a cumulative 1.15 per cent since the beginning of the pandemic, is not done yet.

“We do not believe this is the end of the easing cycle, because of the mounting growth risks, and relatively unscathed medium-term view of benign inflation,” it said, adding that given the limitations on the fiscal side, the central bank will have to do heavy lifting.

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.