India’s GDP May Drop to Multi-Decade Low of 1.6%: Goldman Sachs

It can be noted that growth was estimated to slide to a decade low of 5 percent for FY20 even without the pandemic.

Published
India
2 min read
Goldman Sachs. Image used for representational purposes.
i

Economic growth is likely to plummet to a multi-decade low of 1.6 percent in fiscal year 2020-21 due to COVID-19 pandemic and ensuing measures like lockdowns and social distancing, American financial services firm Goldman Sachs said on Wednesday, 9 April, in one of the bleakest forecasts on GDP yet.

Indian policymakers have not been aggressive enough in their response till now to the crisis, and will need to eventually intensify their efforts, economists at Goldman Sachs said.

It can be noted that growth was estimated to slide to a decade low of 5 percent for FY20 even without the pandemic, and the virus outbreak has only worsened the woes.

‘Sharp Deterioration in Economic Activity Next Quarter’

Many analysts have been doing downward reviews of their forecasts amid coronavirus concerns with some estimating a contraction in the first quarter of the fiscal, but this is the lowest forecast for the year as a whole yet.

“Despite the policy support so far, and our expectations of more, we believe that the nationwide shutdown, and rising public anxiety about the virus are likely to lead to a sharp deterioration in economic activity in March, and in the next quarter,” it said.

The brokerage, which had forecasted the GDP to expand by 3.3 percent on a real basis in FY21 on 22 March, said the 1.6 percent growth will be deeper than the commonly perceived recessions India has experienced in 1970s, 1980s and 2009.

The growth slowdown is different from previous recession episodes because there is fear in the minds of citizens which were not present earlier, it said.

"Our sense so far is of a less aggressive policy stimulus by Indian policymakers compared to, for example, 2009," it said, adding it hopes more actions will follow both from the RBI and the government on top of the 0.75 percent rate cut and the stimulus package of Rs 1.75 lakh crore that they have initiated, respectively.

"The fiscal math will be dented by only 0.08 percent, if we were to include the Rs 1.75 lakh crore package," it said, adding that states will also jump in with their fiscal packages.

Recreation, Culture, Education Likely to Take a Hit

Consumption, which contributes 60 percent of the GDP, is set to be hit badly because of the lockdown, the firm said, upwardly reviewing the impacts on services consumption.

It now expects 95 percent hit to recreation and culture, and hotels and restaurants sectors (up from 70-80 percent earlier) and education down by 80 percent (up from 60 per cent).

"These effects obviously appear very high; in our growth forecasts, we assume these effects to be partial, given that the enforcement of even the nationwide lockdown is not complete, and we assume a staggering exit from the lockdown," it noted.

Apart from that, high frequency data is also not showing much hope, as auto sales were down sharply in March, besides, the fall in manufacturing purchasing managers index and muted global demands.

(The Quint is available on Telegram. For handpicked stories every day, subscribe to us on Telegram)

Stay Updated

Subscribe To Our Daily Newsletter And Get News Delivered Straight To Your Inbox.

Join over 120,000 subscribers!