India’s real GDP growth is expected to contract 10.3 per cent in 2020
Indian economy is worst hit among the emerging markets
According to
IMF prediction, Indian economy is to contract 10.3% in 2020. Indian economy is
the worst affected among the 10 emerging markets. India is also the only economy with a
double-digit contraction. On the other hand, China is expected to see 1.9 per
cent growth, the highest among all of them. India also worst hit by the
COVID-19 pandemic with nearly 8.1 million infected patients.
According to
the report prepared by Motilal Oswal Financial Services, the Investors’ Macro
Ratings Index, which looks at investors’ perception of the economy based on
parameters like real GDP growth, inflation, fiscal deficit and bank credit has
deteriorated in all the emerging economies.
However, India was the most affected in the first half and Taiwan was the least affected. The study examined macro-economic parameters in emerging economies like India, Brazil, China, Indonesia, South Korea, Malaysia, Russia, South Africa, Taiwan and Thailand.
The
inflation will be at 4.9% which is highest in India. Inflation has eased in
most of the emerging economies, except India. Average inflation during the
nine-month period of 2020 has more-than-doubled in India, while in most of the
emerging nations it was lower than the same period in 2019.
While India
along with Brazil has the highest government debt, private non-financial
sectors’ leverage is among the lowest. India’s government debt stands at 72.2
per cent of the GDP and private non-financial debt is at 57.8, indicating lower
levels of leverage.
The data
till August also shows that India is one among the emerging countries which saw
a higher decline in merchandise exports. Till August, India’s merchandise
exports had declined 18.3 per cent, only lesser than Russia with a contraction
of 24.4 per cent. While Taiwan saw a growth of 2.4 per cent, China had a
marginal decline of 0.8 per cent.
A visible collapse in domestic consumption, which led to the steepest decline in gross domestic product in the quarter ended June, prompted Nomura to downgrade India's economic outlook for the ongoing financial year. The research firm now expects the Indian economy to contract 10.8% year-on-year compared with a 6.1% contraction forecast earlier.
India's GDP contracted 24% year-on-year in the
April -June period as the lockdown to contain the coronavirus pandemic stalled
activities in April and most of May before the nation started easing curbs.
Nomura was joined by Credit Suisse, Kotak Institutional Equities and Deutsche
Bank, among others, in a downgrade of growth outlook.
Economic data points to an uneven recovery as of July, with a faster rise in
supply compared to demand, rural consumption versus urban consumption, and
industrial sector versus the services sector, Sonal Varma, chief India
economist at Nomura
Despite a sharp rise in government spending during the quarter, a collapse in
private consumption led to a deeper-than-expected contraction in the country’s
economic activity. This, according to Varma, highlights the need for a fiscal
stimulus.
The latest GDP data, Nomura said, should “clear the air” for policymakers to
reassess their strategies and act as a basis for the next policy stimulus. The
lack of it may lead to a longer period of below-normal activity which risks
knock-on effects on the labour market, small and medium enterprises, and
ultimately on the banking system, the report said.
R K Bhatti
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