India is limping back to some normalcy in economic activity and resumption of business operations despite the rising Covid 19 cases. While partial lockdowns are still in force in certain pockets where the concentration of cases is high, industrial establishments and offices have opened up in the ‘green’ and ‘orange zones’ with due precaution and adherence to restrictions imposed by local authorities. There has not been much change in the economic growth forecasts of leading global financial institutions though. Moreover, the forecasts of a contraction in the economy are common in these reports and looks like a reality in the coming months.

IMF Projects Contraction in the Economy – The International Monetary Fund (IMF) recently released its World Economic Outlook Update, June 2020 report titled ‘A Crisis Like No Other, An Uncertain Recovery’. As per this report, India’s economy is projected to contract by 4.5 percent following a longer period of lockdown and slower recovery than anticipated in April. It mentioned that India has unveiled liquidity support (4½ percent of GDP) through loans and guarantees for businesses and farmers and equity injections into financial institutions and the electricity sector. The only positive note in the report was that the first-quarter GDP was generally worse than expected and the few exceptions include, for example, Chile, China, India, Malaysia, and Thailand, among emerging markets. In April 2020, the IMF had projected a GDP growth of 1.9 per cent for India in 2020, as reported by Asia Law Portal.

Moody’s Estimates Economy to ShrinkMoody’s Investors Service recently projected the Indian economy to shrink 3.1 per cent in 2020 and said clashes with China on the border also suggest rising geopolitical risks in the Asian region where countries are particularly vulnerable to changes in geopolitical dynamics. While it pegged India’s annual growth at 0.2 per cent in April, the forecast has been sharply revised after taking into consideration the disruptions due to the coronavirus pandemic. However, Moody’s expects the economy to register 6.9 per cent growth in 2021. In its June update to Global Macro Outlook (2020-21), Moody’s said it has revised down its 2020 growth forecast for India as incoming data show the extent of coronavirus-related disruption in January-March and April-June quarters. According to Moody’s, a rebound in demand would determine the ability of businesses and labour markets to recover from the shock. “Asian countries are particularly vulnerable to changes in geopolitical dynamics. The rise in tensions between China and countries bordering the South China Sea and clashes on the border with India suggest that geopolitical risks are rising for the entire region,” it said.

World Bank Projects Contraction – The World Bank recently released its report titled ‘Global Economic Prospects, June 2020’. As per the report, in India, growth is estimated to have slowed to 4.2 percent in FY 2019/20 (the year ending in March 2020) and output is projected to contract by 3.2 percent in FY2020/21, when the impact of COVID-19 will largely materialize. The report mentioned that stringent measures to restrict the spread of the virus, which heavily curtail activity, will contribute to the contraction. Spillovers from contracting global growth and balance sheet stress in the financial sector will also adversely impact activity, despite some support from fiscal stimulus and continued monetary policy easing. It further mentioned that in India, the central bank has been purchasing government bonds to further ease financial conditions. The report also stated that fiscal, liquidity, and loan support measures in India include spending on health care to bolster the COVID-19 response, wage support, in-kind and cash transfers to lower-income households, deferral of tax payments, as well as loan and liquidity support for small businesses and financial institutions.

ADB Records Slowest GDP Growth Since 2013 – The Asian Development Bank (ADB) recently released its report titled ‘Asian Development Outlook 2020 Supplement: Lockdown, Loosening, and Asia’s Growth Prospects’. As per the report, growth in Indian GDP slowed to 3.1% in the last quarter of fiscal year 2019 (FY2019, ended 31 March 2020), its slowest since early 2003. The report mentioned that economic growth slowed to 4.2% in the whole of FY2019 as both exports and investment started to contract. High-frequency indicators such as purchasing managers’ indexes fell to all-time lows in April, reflecting the bleak outlook. It also stated that migrant workers have gone home to their villages after losing their jobs in the cities and will be slow to return even after containment measures are relaxed. The report forecasted that GDP is expected to contract by 4.0% in FY2020 before rebounding by 5.0% in FY2021. In India, fuel prices softened in May 2020, but food inflation stayed elevated that month at 7.4% year on year as supply faltered. As food supply disruption is expected to ease from Q2 of FY2020, inflation projections are unchanged at 3.0% for FY2020 but revised up marginally to 4.0% for FY2021 on accelerating demand. The report highlighted that Indian economy is expected to contract by 4.0% in fiscal 2020, then grow by 5.0% the following year as economic activity normalizes gradually.

Fitch – Fitch Ratings has recently released a special report titled ‘Global Economic Outlook: June 2020 – Coronavirus Disruption Easing’. The report continues to predict 2020 GDP to fall by 5% in India, which was mentioned its previous Global Economic Outlook (GEO), as reported by Asia Law Portal. This current special report further mentioned that in India, where authorities imposed one of the most stringent lockdowns globally to try to halt the spread of the virus, measures are being relaxed only very gradually; with a limited policy easing response and ongoing financial sector fragilities, we have pared our 2021 forecast to 8% from 9.5% in the previous GEO, as reported by Asia Law Portal.

Posted by Sourish Mohan Mitra

Sourish Mohan Mitra, India-qualified lawyer from Symbiosis Law School, Pune and currently working as an in-house counsel in Delhi, India; views expressed are personal; he can be reached at; Twitter: @sourish247

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