Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ News / India/  India headed for rare quarterly contraction on lockdown
BackBack

India headed for rare quarterly contraction on lockdown

With two of the three-week shutdown falling in April, gross domestic product growth in the quarter to June could contract about 5%, says an expert
  • India’s economy had contracted 5.2% on an annual basis in 1980
  • RBI's monetary policy committee is scheduled to meet between March 31 and April 3 and the six-member panel is expected to cut interest rates (Photo: Bloomberg)Premium
    RBI's monetary policy committee is scheduled to meet between March 31 and April 3 and the six-member panel is expected to cut interest rates (Photo: Bloomberg)

    India’s economy is poised to shrink next quarter and full-year expansion set to suffer markedly, as a three-week nationwide lockdown starting Wednesday brings activity to a standstill, according to economists including from ING Groep NV and Deutsche Bank AG.

    With two of the three-week shutdown falling in April, gross domestic product growth in the quarter to June could contract about 5%, Prakash Sakpal, an economist at ING in Singapore, wrote in a note. The economy, which expanded 4.7% in the quarter ended December, hasn’t seen a contraction in at least two decades. India’s economy had contracted 5.2% on an annual basis in 1980.

    “The biggest whammy will be to private consumption, which accounts for 57% of India’s GDP," Sakpal said. “With all non-essential consumption dropping virtually to zero for a week in the current quarter means year-on-year GDP growth plunges to just about 1%," he wrote.

    That’s prompted ING to cut its growth forecast for the next financial year starting April 1 to 0.5% from 4.8% -- That’s a far cry from the government’s expectation of 6%-6.5% expansion.

    Deutsche Bank’s Chief India Economist Kaushik Das expects real GDP growth to collapse in April-June to a negative print of 5% year-on-year or more, going by China’s experience.

    “We don’t rule out a possibility of negative real GDP growth in July-September as well," Das said, adding “it will take time to re-start economic activities and push the economy back to a pre-lockdown stage."

    Other assessments were less severe. Rahul Bajoria, a senior economist at Barclays Plc in Mumbai, sees an about two percentage point hit to output, which will trim the calendar 2020 GDP forecast to 2.5% from 4.5% earlier, and fiscal year 2021 projection to 3.5% from 5.2% previously.

    “We estimate that the cumulative shutdown costs will be around $120 billion or 4% of GDP," said Rahul Bajoria, a senior economist at Barclays Plc in Mumbai. Of that, the new shutdown assumptions account for roughly $90 billion of additional impact, he added.

    A median survey of economists by Bloomberg forecast April to June growth at 2.7% while the full-year expansion was pegged at 4.3%.

    Unlike other large economies, India has so far desisted from announcing any major policy initiatives to support growth -- either through interest rate reduction or easing of fiscal purse strings, although Finance Minister Nirmala Sitharaman has promised measures “sooner than later" to support the economy amid the coronavirus pandemic.

    The central bank’s monetary policy committee is scheduled to meet between March 31 and April 3 and the six-member panel is expected to cut interest rates.

    Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

    Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
    More Less
    Published: 25 Mar 2020, 06:13 PM IST
    Next Story footLogo
    Recommended For You
    Switch to the Mint app for fast and personalized news - Get App