India is once again witnessing a surge in Covid-19 infections. As the anniversary of the lockdown approached the increase in cases reared its ugly head and this time the numbers are skyrocketing in affected areas. The second wave is threatening to undo the gains from the decline since December 2020 and could quickly spread across to the rest of the country, if not controlled swiftly. Global financial institutions are forecasting improved growth figures for India’s economy. There is hope this time in the form of available vaccination which has now been opened up to persons aged 45 and above.

Moodys Forecasts Growth Amidst High InflationAfter contracting by 7.1 per cent in 2020, India’s gross domestic product (GDP) is likely to grow 12% in 2021 as near-term prospects have turned more favourable, Moody’s Analytics said. Hit by the COVID-19 pandemic and the subsequent nationwide lockdown to control the spread of infections, Indian economy contracted by 24.4 per cent in April-June 2020 and 7.3 per cent in July-September quarter of the year. However, GDP growth returned to positive territory in October-December quarter, rising by 0.4 per cent. A stronger than expected December quarter GDP growth of 0.4 per cent has turned India’s near-term prospects more favourable. “This forecast is equivalent to real GDP, in level terms, growing by 4.4 per cent above pre-COVID-19 levels (as of March 2020) by the end of 2021, or equivalently, by 5.7 per cent above the GDP level in December 2020 by the end of 2021,” it said.

Moody’s Analytics, in its macro roundup, mentioned that inflation in India is at an uncomfortably high level and is an exception among the Asian economies on this front. The rise in fuel prices will continue to exert upward pressure on inflation and this is likely to prevent the Reserve Bank of India (RBI) from going for further rate cuts. India’s consumer price inflation, calculated on the basis of Consumer Price Index (CPI), rose to 5.03 per cent in February from 4.06 per cent in January on rise in food and fuel prices. The RBI closely follows retail inflation to determine its monetary policy.

Fitch Improves Growth Forecast – Fitch Ratings recently released its Global Economic Outlook – March 2021 report. As per the report, India’s recovery from the depths of the lockdown-induced recession in 2Q20 (calendar year) has been swifter than we expected. GDP surpassed its pre-pandemic level in 4Q20, growing 0.4% yoy, after contracting 7.3% yoy in the previous quarter. The rapid pace of expansion at the end of 2020 was powered by falling virus cases and the gradual rollback of restrictions across States and Union territories. It expects GDP growth to ease to 5.8% in FY23, a downward revision of -0.5pp since December 2020, as reported by Asia Law Portal. The forecast level of GDP remains substantially below our pre-pandemic trajectory. It no longer expect the RBI to cut its policy rate, owing to a brighter short-term growth outlook and a more limited decline in inflation than we had forecast. The RBI will nonetheless keep its policy loose over the forecast horizon to shore up the recovery. The central bank will likely continue to use forward guidance on policy rates and carry out open-market operations to keep a lid on borrowing costs.

Socioeconomic Impact for India – The Economic and Social Commission for Asia and the Pacific (ESCAP), which serves as the United Nations’ regional hub promoting cooperation among countries to achieve inclusive and sustainable development, recently released its Economic and Social Survey of Asia and the Pacific 2021: Towards post-COVID-19 resilient economies’. The survey takes stock of the socioeconomic fallout from the current pandemic and looks at past economic and non-economic shocks that have inflicted damage on the region’s sustainable development prospects in order to draw lessons on how to build forward better during the post-pandemic recovery. It presents the contours of policy packages that are needed in this regard and analyses the impact of implementing them across the economic, social and environmental dimensions of sustainable development.

As per the survey, India entered the pandemic with subdued GDP growth and investment. Following one of the most stringent lockdowns in the world, the economic disruptions that the country experienced mounted in the second quarter of 2020. A subsequent change in lockdown policies and success in reducing infection rates supported an impressive economic turnaround in the third quarter. However, the pace of recovery moderated in the fourth quarter with estimated year-on-year growth still close to zero. Despite a robust reduction in new COVID-19 cases and the start of vaccine roll-out, India’s 2021 economic output is expected to remain below the 2019 level. Meanwhile, maintaining low borrowing costs while keeping nonperforming loans in check would be a challenge.

OECD – The Organization for Economic Co-operation and Development (OECD) recently released its OECD Economic Outlook, Interim Report March 2021. As per the report, rebound has been relatively fast in several large emerging-market economies. Activity moved above pre-pandemic levels in India and significant fiscal and monetary support continues to underpin activity. Further, India’s GDP growth is expected to bounce sharply to 12.6% in FY22 cushioned by solid fiscal and quasi-fiscal measures, making it the fastest-growing economy in the world. It raised the projection for India’s economic growth rate by 4.7 percentage points from 7.9% pegged in December 2020. The organisation has stated that it expects the country’s GDP to shrink by 7.4% in FY21, against the December 2020 forecast of 9.9% contraction.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra is an India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel with a global research firm in Delhi, India; views expressed are personal; he can be reached at sourish24x7@gmail.com; Twitter: @sourish247

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