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Fears of Possible Recession as India Waits for Economic Growth Data for the Covid-Affected Quarter

New Delhi (Sputnik): The Indian economy was slowing down even before the Covid-19 pandemic hit the country. From a high of over 8 percent in 2018, India’s growth fell to 4.7 percent during October-December 2019. In Jan-March 2020, Covid-19 dashed all hope of a recovery.

India is eagerly awaiting growth data for the January-March quarter as it will give an indication of the extent of the economic loss caused by the Covid-19 pandemic

Global rating agencies and other microeconomic observers have forecasted a growth contraction in the range of 0% to 5% in the current financial year (April 2020 – March 2021).

Even though Indian Prime Minister Narendra Modi announced a nation-wide lockdown on 25 March, economic activities slowed down almost a week before that.

In the first quarter (April-June) of the financial year 2019-20, India saw GDP growth of 5.6 percent. The next two subsequent quarters of July-September and October-December witnessed GDP growth of 5.1 percent and 4.7 percent. 

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Care ratings said it expects GDP growth in the quarter ending March 2020 to fall 3.6 percent with the headline number falling to 4.7 percent for the entire year. HSBC said: “For the quarter as a whole, there could be a 10 percent annualized sequential contraction”.

Joseph Thomas, Head (Research), Emkay Wealth Management, said, “The lockdown actually started in the last week of March, and therefore, the GDP number may not reflect the actual ground reality currently prevailing and the full impact of the lockdown on the main sectors of the economy. The rate of growth for the last quarter may still be in the lower single digit, while the numbers for the current quarter may reflect the actual distress in the economy.”

“The pandemic dealt a severe body blow to the economy consequent to the national lockdown, and the widespread wage cuts and job losses both in the formal sector and the unorganized sector,” Joseph added, pointing to the fact that more distress may be seen in the numbers for April onwards.

Professor Bhanumurthy of the National Institute of Public Finance and Policy puts it bluntly. “India is undoubtedly in recession. There is no doubt about it.”

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Rating agencies have projected a deep contraction in the Indian growth for the financial year 2020-21. Nomura, Goldman Sachs and Fitch Ratings have projected that Indian growth will contract by 5 percent in 2020-21. Nomura has predicted that April – June 2020 will see a massive contraction of 25 percent  and getting back to pre-pandemic levels of growth is unlikely in the next three years. The agency gives multiple reasons for the deep contraction, including disruption to supply chains, reverse migration of the labour force and a looming liquidity crunch.   

India rolled out a $266 billion economic stimulus package recently that failed to make much of an impression on the markets.  India's banking regulator, too, has deployed a number of liquidity measures since March and reduced its benchmark lending rates twice. 

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