India’s self-imposed near total lockdown of 21 days has been further extended to May 03, 2020. This 40-day shutdown has derailed the economy as per reports of global financial institutions. There has been marginal lifting of the restrictive measures in select areas for some essential services only but the spike in new cases threatens hopes of economic revival in the near term. The FDI policy has been amended to prevent hostile takeover of Indian companies due to the adverse effect of Covid-19 on business operations and share prices.
World Bank – The World Bank has recently released its report title ‘South Asia Economic Focus, Spring 2020 : The Cursed Blessing of Public Banks. The report mentions that in India, GDP growth in the fiscal year that has just started in April 2020 is expected to range between 1.5 and 2.8 percent, implying per-capita GDP growth of between 0.5 and 1.8 percent. This would come after already disappointing growth rates in previous years. The green shoots of a rebound that were observable at the end of 2019 have been overtaken by the negative impacts of the global crisis.
The report mentions that the COVID-19 outbreak came at a time when India’s economy was already slowing, due to persistent financial sector weaknesses. To contain it, the government imposed a ‘lockdown’ with restrictions on mobility of goods and people. The resulting domestic supply and demand disruptions (on the back of weak external demand) are expected to result in a sharp growth deceleration in FY21, to 2.8 percent in a baseline scenario (an estimate subject to wide confidence intervals). The services sector will be particularly impacted. A revival in domestic investment is likely to be delayed given enhanced risk aversion on a global scale, and renewed concerns about financial sector resilience. Growth is expected to rebound to 5.0 percent in FY22 as the impact of COVID-19 dissipates, and fiscal and monetary policy support pays off with a lag.
Fitch Lowers Growth Rate – Fitch Ratings has revised down its economic growth forecast for India to 0.8% in the fiscal year ending March 2021 (FY21), reflecting the impact of the coronavirus pandemic and official efforts to contain it. This is down sharply from its forecast of 5.6% prior to the outbreak, as reported by Asia Law Portal in February 2020. The growth is expected to rebound to 6.7% in FY22, but there is a risk that the crisis could amplify fiscal and financial sector strains and hurt the country’s growth prospects over the medium term.
Fitch cites that Indian authorities have extended a nationwide lockdown designed to curb the spread of the coronavirus until 3 May. The restrictions, in place since 25 March, are relatively tight, banning non-essential business and imposing strict controls on transport. However, there has been some recent relaxation, permitting the resumption of limited manufacturing and agricultural activity. Government may tighten fiscal policy again once the pandemic is under control, but India’s record of meeting fiscal targets and implementing fiscal rules has been mixed in recent years, which will colour Fitch’s assessment of any official commitment to tighten fiscal policy over the medium term.
IMF Projects India’s Worst Economic Performance– The International Monetary Fund (IMF) recently projected a GDP growth of 1.9 per cent for India in 2020, as the global economy hits the worst recession since the Great Depression in the 1930s due to the raging coronavirus pandemic that has nearly stalled all economic activities across the world. With this subdued forecast, India is likely to record its worst growth performance since the 1991 liberalisation. The silver lining though is that, IMF, in its latest edition of the World Economic Outlook, April 2020 titled ‘The Great Lockdown’ report, has placed India as the fastest-growing emerging economies of the world. It is among the only two major countries, which will register a positive growth rate in 2020. The other being China, for which the IMF has projected a growth rate of 1.2 per cent. Currently, only Chapter 1 of the report has been released and the full report shall follow in May 2020.
Moody’s Severe Growth Impact – Moody’s Investors Service very recently slashed India’s growth forecast to 0.2 per cent for the 2020 calendar year from the earlier projection of 2.5 per cent released in March 2020, as reported by Asia Law Portal. Stating that the economic costs of shutdown of the global economy are accumulating rapidly, Moody’s in its Global Macro Outlook 2020-21 (April 2020 Update) projected that all G-20 advanced economies would contract by 5.8 per cent in 2020. India, China and Indonesia are the only 3 G-20 countries which are projected to grow in 2020, while the others will see a contraction, according to the report.
FDI Policy Amended – The Government of India recently issued Press Note 3 (2020 series) to review of Foreign Direct Investment (FDI) policy for curbing opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic. The amendment now requires an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route. The earlier provision was applicable to Bangladesh along with stricter norms for Pakistan. With this amendment, foreign investment from China will now require approval from the Government.