Indian economy on course for full-year contraction: DBS

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American brokerage Goldman Sachs expects the Indian economy to contract by 5 per cent in FY21, making it the worst performance by the country ever.
Economic crisis

New Delhi, May 31 (PTI) The Indian economy is on course for a full-year contraction this fiscal, as recovery prospects from COVID-19 related disruptions remain “clouded”, according to DBS Bank India economist Radhika Rao.

The comments came amid the release of key data that showed India’s GDP growth tumbling to 3.1 per cent in the March quarter — the slowest pace since the global financial crisis more than a decade back.

In 2019-20, the Indian economy grew by 4.2 per cent, the slowest in 11 years.

Commenting on the GDP data, Rao said, “Headline growth was firmer than consensus, but was constrained by data collection issues, including unavailability of earnings for many sectors. This keeps the door open for downward revision to this growth rate”.

Stating that the 2Q20 (April-June) will provide a clearer picture of the economic slump during the lockdown, Rao said, adding “recovery prospects in FY21 remain clouded and the economy is on course for a full-year contraction this year”.

According to DBS, consumer discretionary sectors, production and services are likely to take longer to recover.

“Drivers of agricultural output will be watched closely as much hope rests on the sector to provide a counterbalancing effect, especially monsoon strength, as kharif sowing will get underway,” DBS said in a research note.

Meanwhile, the government on Saturday said a phased exit would begin on June 1 from the over-two-months-long nationwide lockdown.

Announcing the new guidelines, the Union Home Ministry said a complete lockdown would continue till June 30 in areas identified as COVID-19 containment zones across the country, but restrictions would be lifted in a phased manner at other places after the ongoing fourth phase, ending this Sunday.

“As the country goes to a post-pandemic situation, among all the priorities we have, health recovery will be very important. Risks of a second wave should be monitored closely, as regional experience attests, which can potentially not only extend movement restrictions but also carry significant economic impact.

“It is encouraging that states can have a bigger say in this regard, as subject to local conditions, part of the community can be opened up whilst few of the metros where the count continues to rise, higher vigilance can be maintained,” Rao said.

The Health Ministry said all precautions must be taken while “living with the new normal” of COVID-19, as it stressed on strict adherence to physical distancing and use of face covers at public places by everyone while also following personal and social hygiene standards.

Source: PTI

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