Business Today
Loading...

Indian economy on ventilator: Goldman Sachs, Fitch cut FY21 GDP growth estimates

While Goldman Sachs and Fitch estimated real GDP growth to contract 14.8 per cent and 10.5 per cent, respectively, in FY21, economists at State Bank of India projected a negative growth of 10.9 per cent

Chitranjan Kumar | September 11, 2020 | Updated 22:04 IST
Indian economy on ventilator: Goldman Sachs, Fitch cut FY21 GDP growth estimates
India's GDP shrank by 23.9 per cent in the first quarter of FY21

The coronavirus pandemic and subsequent lockdown has added to the woes of the crisis-ridden Indian economy. Following worst-ever performance in the first quarter, many rating agencies have cut India's growth forecast for the current financial year 2020-21 (FY21). While global rating firms Goldman Sachs and Fitch estimated real GDP growth to contract 14.8 per cent and 10.5 per cent, respectively, in FY21, economists at State Bank of India projected a negative growth of 10.9 per cent.

Indian economic output shrank by 23.9 per cent in the first quarter of FY21. This was the worst quarterly GDP numbers ever recorded since India started compiling GDP data on quarterly basis in 1996. The economy is set to enter a recessionary phase with most of the contraction expected to continue in subsequent quarters.

Also Read: Infographic: India's GDP - Apples to apples

What is Recession?

Recession is a period of temporary economic decline marked by slowdown in industrial activity and trade, generally identified by a gross domestic product (GDP) contraction in two straight quarters.

India is technically on the verge of recession as weak investment and capital spending coupled with subdued consumption demand continue to negatively impact economy. Most analysts anticipate contraction in subsequent quarters.

It is for the first time in 40 years when India's GDP registered negative growth. It has reported four instances of negative GDP growth since Independence. It registered contractions of 1.2 per cent in FY58, followed by -3.66 per cent in FY66, -0.32 per cent in FY73 and -5.2 per cent in FY80.  The reason was the same each time - a monsoon shock that hit agriculture. Interestingly, this time around, agriculture was the only sector that has shown positive growth in June quarter.

Analysts see bumpy road ahead for Indian economy

Global rating agency Fitch Ratings expects India's GDP to contract by 10.5 per cent in FY21 against its previous estimation of 5 per cent contraction, citing economic fallout amid the coronavirus pandemic. Goldman Sachs expects real GDP growth to contract 14.8 per cent in FY21 against its earlier estimate of 11.8 per cent contraction in this period.

Also Read: GDP for FY21: Rating agencies revise growth forecast; expect deeper contraction

In a similar line, India Ratings and Research, a part of Fitch Group, has revised its FY21 GDP growth forecast further downward to negative 11.8 per cent from negative 5.3 per cent because of the impact of the COVID-19 pandemic and resultant lockdown. According to State Bank of India's research report Ecowrap, India's GDP may contract by 10.9 per cent in the current financial year as against previously expected contraction of 6.8 per cent. The report said that apart from 'agriculture, forestry & fishing', 'electricity, gas, water supply & other utility services' and 'public administration, defence and other services' almost all other sectors will exhibit declining trend.

Also Read: India's GDP to contract by 16.5% in Q1 FY21: SBI report

The rating agencies have raised concerns over rapid rise in coronavirus cases in the rural hinterland. During the months of July and August, coronavirus has now significantly penetrated the rural areas. The percentage of cases in rural districts to total new cases has risen to 54 per cent in August. Also, the number of rural districts with less than 10 cases have reduced significantly. India's COVID-19 tally went past 43 lakh with a spike of 89,706 cases in a day, as per latest data released by the Health Ministry. India now has the fastest-growing coronavirus caseload in any country in the world. Total coronavirus cases have mounted to 43,70,129, while death toll has climbed to 73,890 with a fatality of 2.17 per cent.

But all is not lost  

The rating agencies expect Indian economy to see a full-bound recovery by 2021. Goldman Sachs, which cut India's real GDP growth to contract 14.8 per cent in FY21, expects economy to bounce back strongly to 27.1 per cent on year-on-year basis in Q2 2021 (April-June 2021) due to favorable base effects. This is based on assumption that 70 per cent of the lost output in June 2020 will recover by June end of 2021.

Also Read: Goldman Sachs expects India's economy to rebound by 2021

Japanese research firm Nomura, Fitch Ratings and India Ratings also see hopes of recovery in FY22. India Ratings and Research, which pegged GDP to contract 11.8 per cent in FY21, has estimated a rebound of 9.9 per cent in FY22.

Fitch Ratings expects India's economy to bounce back in the next financial year. The economy, it said, will recover to 11 per cent in 2021-22 largely owing to base effect and grow by 6 per cent in the following year.

Youtube
  • Print

  • COMMENT
BT-Story-Page-B.gif
A    A   A
close