Economists say that the country is facing a slowdown in consumer demand as household incomes and jobs decline and the government has limited space to stimulate growth owing to its growing debts. Between January to March, the GPS (GDP) and the ECI grew by 1.6% compared to the same period last year, driven by government expenditure and growth in the manufacturing sector, the Ministry of Statistics showed on Monday. Sakshi Gupta, the senior economist at the HDFC Bank, said that while the April-June quarters appear optimistic year on year, sequential growth is likely to contract on a lower basis.
Moodys Investors Service lowered India's growth forecast for the current 2021-22 fiscal year to 9.6 percent, from a forecast of 13.9 percent a year ago, noting that faster import steps are crucial for India to mitigate the impact of COVID-19. The benchmark BSE SENSEX has reached another milestone, reaching an all-time high of 5,53,711 last week - almost double the level of March 2020 - With the Indian government and manufacturing losing orders in the second wave, it seems unrealistic to expect a large foreign capital inflow.
Indian growth in the current fiscal year has been slashed by several international banks and rating agencies in the face of the devastation of the second wave of the pandemic. While the OECD's economic outlook for 2021 offers a positive outlook for the Indian economy, the new virus variants of the second wave pose a new growth risk.
Official figures released on full-year growth released this week showed that India's economy contracted in FY21 by 7.3 percent, the sharpest contraction in the country's history. While India is expected to recover faster than the major economies in FY22, growth in the first quarter was hit hard by the second wave.
In April, as the world began to understand the scale of India's second wave of economic growth, the International Monetary Fund (IMF) raised its forecast for India's economic growth in 2022 from 11.5% to 12.5%. Given that the figures are to be revised, the IMF's earlier forecast now appears unrealistic.
Economists believe that the collapse of India's healthcare system and the rapid spread of the second wave of coronavirus infections will cause India's GDP growth rate to contract in 2021. On 27 March Moodys Investors Service (now Moodys) updated its estimate of India's GDP growth per capita for 2020 from 5.3% to 2.5%. On April 28, the former chief economic adviser to the Indian CEA said that the government should be prepared for a negative growth rate for FY21.
Many credit rating agencies and banks have lowered their GDP forecasts for India in a matter of months. Economist Christophe Barraud has written an article about the downgrade of India's GDP growth rate from 11.8% to 10.2% in 2021 by global forecasting firm Oxford Economics. The collapse of the Indian health system, the rise in COVID-19 cases, India's poor vaccination rate, and the lack of an effective government strategy to combat the pandemic are cited as the main reasons for the downgrade of growth rate.
On Tuesday, the State Bank of India (SBI) cut its 2019 year-long growth forecast to 7.9 percent from 10.4 percent previously forecast. The economic impact of the COVID-19 pandemic in India was devastating. India's March quarter (Q4FY21) saw a slight improvement in GDP growth, but economists believe this will slow in the second wave of the pandemic.
India's growth slowed by 3.1% in the fourth quarter of the 2020 fiscal year, according to the ministry of statistics. India's top economic adviser said this was due to the impact of the coronavirus pandemic on the Indian economy. While India experienced a slowdown before the pandemic, according to the World Bank, the COVID-19 pandemic has increased existing risks to India's economic prospects.
Emerging economies are expected to contribute 6.4 percent to global economic growth this year. The IMF's World Economic Outlook predicts that emerging markets, including India, will grow by 6.7 percent, while the global economy will grow by 6 percent in 2021.
For example, the United States and China, India's largest trading partner, could experience supply-chain disruptions as a result of India's economic slowdown. This scenario is optimistic, but India's declining growth could have secondary effects that could have further implications for the global economy. A key medium-term risk to India’s economy remains a deepening employment crisis that could prevent India from taking full advantage of its favorable demographic situation.
Of course, these problems existed before the COVID 19 pandemic struck in the first two waves, but the third will exacerbate the problems and have a lasting impact. The countryside, which was the saving grace of the first wave, will be affected this time.
The COVID 19 pandemic continues to affect lives and livelihoods and the Indian economy, with a devastating second wave wreaking havoc and a third wave looming. Investment and trade performance has been weak, as consumption caught fire in India during the first and second waves of the pandemic. This follows the economic slowdown in the three years prior to this pandemic.
To understand the economic impact of the second wave, we should remember the first wave and its impact on the economy. We see the contrast between the effects of the first and second waves in the data on wage growth in agriculture. Average wage growth in the agricultural sector for the period November 2020 to March 2021 has been reduced from 8.5 percent in April-August 2020 in the first wave to 2.9 percent in the second.
These results and the discussion on the economic impact assessment are summarized in Table 4. A summary of India's main economic indicators and forecasts can be viewed in a larger version: the biggest impact on GDP growth is expected at least for 2020-2021.
As India's economy shifts from agriculture to services and manufacturing, the government must help workers transition away from agriculture, which employs a large share of the working population, especially in rural areas. The reports show that India's manufacturing and construction sectors will be the biggest drivers of growth, contributing between 9.6% and 8.5% to annual GDP growth and creating between 11 and 24 million jobs between 2023 and 2030. As India recovers from COVID-19, economists stress that large-scale investment in recovery and reforms to improve the financial health of the banking sector, if implemented, will generate stronger growth and allay concerns about a possible solvency crisis for state-owned banks.
You can read our blog What Does A New Study Say About The Indian Financial Market In 2020-21?
Disclaimer: This information has been collected through secondary research and Chakde Credit is not responsible for any errors in the same.
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