The United States-based multinational investment bank Goldman Sachs has predicted that the Indian economy will experience the worst recession ever after its already weakened state was further dragged down by the countrywide lockdown to contain the coronavirus pandemic. This is the third time that Goldman Sachs has slashed its forecast for India’s economic growth for 2020-’21.
The Gross Domestic Product will contract by an annualised 45% in the second quarter from the prior three months, compared with the previous forecast of a 20% slump. A robust recovery of 20% is now likely in the third quarter. However, projections for the fourth and first of the next year remain unaffected at 14% and 6.5%.
The Centre’s Rs 20 lakh crore economic package to revive the battered economy is unlikely to have an immediate impact on growth, the bank’s economists said in a report. “There have been a series of structural reform announcements across several sectors over the past few days,” it said. “These reforms are more medium-term in nature, and we therefore do not expect these to have an immediate impact on reviving growth.”
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The Centre claims the economic package is equivalent to 10% of India’s GDP. But analysts have pointed out that a significant portion of that amount includes measures which have been earlier announced and the efforts by the Reserve Bank of India. The calculations further assume economic activity even though the government’s actual expenditure is far smaller than the stated amount.
The bank said the deeper trough in the forecast reflected the “extremely poor data” it had received so far for the month of March and April and the continued lockdown measures, which are among the most stringent across the world. India extended a nationwide lockdown until the end of the month, keeping in place many but not all of the strict rules, while further easing restrictions in certain sectors to boost economic activity.
“India’s services Purchasing Managers’ Index fell to a record-low of 5.4 in April, probably among the lowest readings ever globally,” the report said. The country’s “exports and imports both reported a contraction of 60% year-over-year in April. Even for the month of March, where the lockdown was only for a week, industrial production contracted by 16.7%, and exports fell by 34.6%,” it added.
The economists of Goldman Sachs observed that it is not just stay-at-home orders and other government restrictions that have chilled economic activity. Despite the relaxations, major parts of the economy operated at significantly less than full capacity in the third phase of the lockdown.
Moreover, restarting during the extended lockdown period has continued to pose challenges, especially in red zones, even if the rules allowed them to do so, the bank said. “Supply chains are improving, but are still operating at low levels, along with missing logistics, and weak end-demand,” the report stated. “The categorisation of hotspot areas, too, changes frequently, making it harder and costlier for companies to plan their logistics.”
The number of coronavirus cases in India rose to 96,169 on Monday morning and the toll went up to 3,029.
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