FY21 may see worst ever decline in GDP

Goldman Sachs and Fitch Ratings on Tuesday forecast deeper-than-previously estimated economic recession for India in FY21 holding that limited fiscal support, fragilities in the financial system and a continued rise in coronavirus cases are hampering a rapid normalisation in economic activity.

Investment bank Goldman Sachs anticipates Indias gross domestic product (GDP) to shrink 14.8% this fiscal against its earlier estimate of an 11.8% contraction. Fitch Ratings, meanwhile, cut its growth forecast for India for FY21 to a contraction of 10.5%, more than double the 5% contraction projected in June.

The latest estimates by Fitch and Goldman Sachs are among the worst for the Indian economy for this fiscal, which may make it the deepest contraction so far in Indias history. The previous lowest was a GDP contraction of 5.2% in FY80.

Indias economy contracted 23.9% in the June quarter in the steepest pace in four decades. It was the worst performance among G20 nations, and significantly below expectations of most economists, as the stringent covid-19-induced national lockdown created a double-whammy through both a supply and demand side shock as businesses shut operations while consumers were forced to stay home.