Asia News May 20

Goldman Sachs sees contraction of Indian economy

Bank expects the country's GDP to fall by 5% this fiscal year, the sharpest contraction in 41 years

by KS Kumar
Goldman Sachs sees contraction of Indian economy
Deserted streets during a government-imposed nationwide lockdown as a preventive measure against Covid-19 in Allahabad in the Indian state of Uttar Pradesh on April 7, 2020. Photo: AFP/Sanjay Kanojia

Investment bank Goldman Sachs has forecast that India will pay a heavy price for its prolonged lockdown and it may experience its deepest recession since 1979.

It said the economy will shrink 45% this quarter and its gross domestic product will fall by 5% this fiscal year, the sharpest contraction in 41 years.

The bank said the recent stimulus package announced by the Indian government will bring only medium-term relief and may not be enough to bring about any immediate relief.

Goldman, however, expects the Indian economy to rebound by 20% in the third quarter once normal economic activities are restored. It also retained the projections for the fourth quarter and the next year’s first quarter at 14% and 6.5%.

The Indian government on Sunday extended the Covid-19 lockdown for two more weeks until May 31, but eased curbs in some sectors to resume economic activities.

Moody’s outlook

Meanwhile, Moody’s Investors Service said the fiscal package announced by the Indian government will not fully prevent the negative impact of Covid-19 on the economy.

The government announced a support package of 3.7 trillion rupees (US$49 billion) for small industries and 750 billion rupees ($9.9 billion) for the shadow banks. Moody’s said small industries were already facing stress before the coronavirus outbreak and a further slowdown may force many of these firms to go bankrupt.

As for shadow banks, Moody’s said the support was far from adequate to cover liquidity requirements, especially that of smaller players.

Opposition view

India’s former finance minister P Chidambaram said the Centre’s economic package was 1.86 trillion rupees and not 20 trillion rupees ($264 billion), as claimed by the government. He claimed that many of the announcements by Finance Minister Nirmala Sitharaman were just front-loading previously budgeted expenditures.

British brokerage firm Barclays Research claimed the Indian government’s balance sheet will bear only 1.5 trillion rupees (0.75% of GDP) worth of expenditure from the proposed 20 trillion rupee package. The rest will come from the Reserve Bank of India’s liquidity measures, amounting to 8.1 trillion rupees, government guarantees, food stocks or the non-fiscal, non-monetary measures proposed.

The number of confirmed Covid-19 cases in India crossed the 100,000 mark and the government has extended the lockdown till May 31.