However, the real impact of the 21-day lockdown will be felt in the first quarter of financial year 2021, it said. “With two-thirds of the impact being passed on to the April-June quarter. This can potentially lead to a de-growth in GDP.”
“As things stand, and the government retains the 2020-21 expenditure budget for 2021-22 as well, it is likely that 2021-22 will witness a GDP growth rate of -8.8%. This is a frightening thought since it means that the country could experience a full-blown depression – the first in our history as an independent nation,” says Sen.
Virus has sharply altered India’s economic recovery: RBI
India’s GDP, or the total value of goods and services produced by our country, is derived primarily from formal sector data. This data is used and it is assumed they have a relationship with the informal sector and thus a national figure is estimated.
With the global economy already on the back foot due to all-round sluggishness, the US-China trade wars and more since last year, the coronavirus pandemic now has ensured that it is set for a tumble this year. The United Nations Conference on Trade and Development (UNCTAD) says global growth, which was already low at 2.9 per cent last year, could fall below 2 per cent this year. Moody’s, the rating agency, revised its global GDP projection to just 2.1 per cent, while Rabobank, a Dutch multinational banking and financial company, put it even lower at 1.6 per cent. If you go by the Washington-headquartered body of banks, the Institute for International Finance (IIF), it could be even less at just one per cent.
While many are hopeful that even if a recession hits major economies that are part of the global supply chain, it would likely be short-lived. However, with cases of infections rising by the hour and the economy world over getting the hard end of the stick, India should do well to be cautious.
While the economy is shut down, policymakers will need to ensure that people are able to meet their needs and that businesses can pick up once the acute phases of the pandemic pass. The large, timely, and targeted, fiscal, monetary, and financial policies already taken by many policymakers—including credit guarantees, liquidity facilities, loan forbearance, expanded unemployment insurance, enhanced benefits, and tax relief—have been lifelines to households and businesses. This support should continue throughout the containment phase to minimize persistent scars that could emerge from subdued investment and job losses in this severe downturn.
Veteran economist Arun Kumar in fact thinks the contraction of GDP in the months of the lockdown has been even more severe.“I would say about 75 per cent of the GDP was wiped out in April and about 65 per cent in May. Exports, investment and consumption, all three engines of growth went into a tailspin,” says Kumar.Kumar goes further in saying, “India would be the first country in modern history to face a depression. It would take at least three to four years to emerge out of it.”“In the current fiscal, the GDP is set to contract by at least 30 per cent. My estimate is that from Rs 204 lakh crore, our GDP will come down to Rs 130 lakh crore. Tax to GDP ratio will fall from 16 per cent to 8 per cent. In such a situation, it would be difficult for the government to pay salaries or finance the defence budget.”
India’s finance minister recently detailed a stimulus package worth 20 trillion rupees ($265 billion), or about 10% of national GDP, intended to offset the economic fallout of the coronavirus outbreak. However, Goldman economists Prachi Mishra and Andrew Tilton argued government interventions wouldn’t immediately shore up growth.