By Eurasia Business News – December 3, 2020
The Indian Central Bank forecasts a 9.5% GDP decline in 2020 – Picture : The Taj Mahal mausoleum in Agra, India, Photo credit : Pexels.
India officially entered recession, for the first time since its independence in 1947. Gross domestic product fell 7.5% between July and September, after a historic drop of 23.9% (compared to the same quarter of 2019), in the second quarter, due to the COVID-19 pandemics.
The massive impact of the coronavirus is the main cause, as a large part of the India population, working in the informal economy, has suffered greatly from the lockdown measures. The South Asian giant is the second most affected country in the world by the number of cases after the United States, with more than nine million people infected.
Even though the India’s GDP rebounded quarter over quarter, it was one of the worst performers among major economies. Despite the recovery in consumer spending – the traditional engine of Indian growth – linked to purchases in anticipation of the festive season of October-November, other sectors such as construction and hotels are still struggling.
The Chief Economic Adviser to the Government of India, Krishnamurthy Subramanian, however, noted “encouraging results “, hoping for a V-shaped recovery, supported by domestic stronger demand for consumer goods and investment. The renewed confidence also comes from recent announcements on the vaccine front, which could be ready in a few weeks.
According to Indian Central Bank estimates released in October, New Delhi is forecasting a 9.5% GDP decline in 2020. A little more pessimistic, the IMF announces a 10.3% drop, the sharpest contraction among the large emerging countries, before an expected rebound next year of 8.8%.
The OECD forecast that the output in India should rise by 8% in fiscal year 2021-22 provided confidence improves, after having declined by 10% in fiscal year 2020-21. Further reductions in policy interest rates should help to support demand, if the current upturn in inflation subsides, but there is limited scope for additional fiscal measures. Further pressures on corporate balance sheets and banking sector bad loans are also likely to restrain the pace of the upturn. The average India’s GDP growth in the 2013-2019 years was 6.8%.
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