India will slip into recession for the first time in 40 years: Axis Capital

Mayur Shetty | TNN | Updated: Apr 23, 2020, 19:38 IST

(Representative image)

MUMBAI: A report by Axis Capital has said that India would go into recession in FY21 – the first time in 40 years because of the lockdown to prevent the spread of Covid-19. The report has forecast that the gross domestic product will decline by 1.7% led mainly by a steep contraction in manufacturing, and trade transport and communication.
“The only sectors where we do not see negative prints for the year as a whole is agriculture, public administration and to a small extent ‘finance & business services’” said Prithviraj Srinivas and economist with Axis Capital - a subsidiary of Axis Bank in a report.
Meanwhile, in a separate report, the Confederation of Indian Industry has said that in the downside risk scenario, where the pandemic outbreak gets prolonged, thereby restricting full restoration of economic activity for an extended period, the GDP growth for FY2021 could contract by as much as -0.9%. CII, however, expects a 0.6% growth in its baseline scenario and a 1.5% GDP growth under its optimistic assessment of the economy.
According to Srinivas, June quarter 2020 will almost certainly be the trough point but the extent of the decline is still unknown. “If the starting point at the end of June quarter is -10 to 15% y-o-y and the speed of the recovery is around 4 to 5% we should end the year with near-zero growth. However, in our base case, we assume that the recovery from June will be restrained by supply even if there is some pent-up demand. This is why we think 2020 will be first negative print in ~40 years,” the report said.
Give the base effect, the growth rate in FY21 would reflect a sharp bounceback with a growth rate of close to 10% in FY21. “Gradual normalization of supply chains and some pent-up demand will be the main driver of growth in the coming quarters of 2020,” the report said.
According to Srinivas, 'The Great Lockdown (TGL)' is expected to pull global growth down by 3% in 2020 (worse than -0.073% in 2009). “While the IMF predicts India to escape negative growth this year, we see negative growth given the extended nationwide lockdown. The forced shift to minimalism from unhindered consumerism has created sudden output and capacity surpluses,” he said.