India’s GDP contraction continue to persist another quarter though at slower pace, forecasts GlobalData

Following the news that Indian economy has nosedived by 23.9% YoY in the April-June 2020 quarter, the acutest historical decline;

Kausani Basak, Economic Research Analyst at GlobalData, a leading data and analytics company, offers her view on the dip:

“India imposed one of the strictest lockdowns in the world which in turn has led to a wipe out of almost one-fourth of its GDP during April-June 2020. GlobalData’s forecast suggests the economy to contract less intensively by 7.5% YoY in July-September 2020 quarter, as relaxations allowed since June 2020 have revived some employment opportunities and resulted in a deceleration in contraction of production. GDP contraction is expected to lose pace further to 0.5% YoY decline in October-December 2020 quarter and finally register a marginal recovery of 1.6% in January-March 2021, given the COVID-19 curve flattens successfully.

“Closed factories and construction activities during the April-June 2020 quarter had pulled down rural and urban consumption activity alike, aggravating the plight of the millions of poor in India. Even among the urban upper and middle-class population consumption trends are cautious with many postponing purchases due to restrictions and hoping for times of better economic clarity. As a result, the private fixed consumption expenditure has declined by 26.7% YoY in the April-June 2020 quarter.

“At the same time, small and medium businesses have suffered tremendous loss and many are relying on the loan moratorium and collateral free loans offered by the government to stay afloat. The dire situation is reflected in the 47.1% decline in gross fixed capital formation in April-June 2020 quarter. Sales of commercial vehicles also declined by 84.8% in the same quarter due to reduced movement of goods in the country.

“Exports, which is one of the major contributors to GDP, has recorded a double-digit contraction of 19.8% due to domestic supply chain disruptions arising out of restrictions, downward spiral in global demand stemming from poor consumer confidence in partner countries.

“The road to recovery is expected to be rocky and long drawn due to pre-existing drawbacks of the economy such as low capital formation, huge informal labor force, and poor health of the banking sector.

“Forward looking government policies are necessary to support marginal and small-scale industries, which are expected to face hard times in the coming months. In such a situation, reviving consumption demand, both discretionary and non-discretionary, among the masses is the key challenge for the government bearing in mind that the consumer confidence fell to an all-time low in July 2020. Higher job creation for the poor and middleclass population through targeted public investment and leveraging on low cost labor will aid in the economic recovery in 2021.”

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