India’s GDP may shrink 10.5% this fiscal year; Fitch doubles contraction estimate after poor Q1

India has experienced stringent lockdowns in Q1 FY20, which saw mobility levels fall very sharply.

Indian economy may face a strong headwind in the current fiscal year even as the global economy is projected to fall less than anticipated. In a major cut in India’s annual GDP growth projections, Fitch Ratings has substantially revised down the forecast to a contraction of 10.5 per cent from 5 per cent. “India has experienced stringent lockdowns in Q1 FY20, which saw mobility levels fall very sharply and Q1 FY20 GDP surprise on the downside compared with our June GEO estimates,” Fitch Ratings added. On the other hand, Fitch Ratings in its latest Global Economic Outlook (GEO) expects global GDP to fall by 4.4 per cent in 2020, which is a modest upward revision from the 4.6 per cent decline expected in the June GEO.

The report in the early months of the pandemic had suggested that India and China would be two ncountries that would dodge the global recession and will see positive growth in the fiscal. However, Fitch Ratings has predicted China’s growth forecast at 2.7 per cent, while showing a double-digit contraction for India.  Coronavirus cases in India are on a steep rise and the country now holds the second position globally in the maximum number of coronavirus cases.

Also Read: Raghuram Rajan calls economy a patient that needs emergency treatment now, not later

It is to be noted that Indian GDP saw an unprecedented contraction of 23.9 per cent in the first quarter of the current fiscal. While the construction activity halved in the country, the manufacturing sector nosedived during April-June.  Estimates also show a contraction in the rest of the three quarters this fiscal year.

Meanwhile, Former RBI Governor Raghuram Rajan said that the government’s reluctance to do more at present to conserve resources for a possible future stimulus is a self-defeating strategy. The noted economist, Raghuram Rajan, had also added that if one thinks of the economy as a patient, relief is the sustenance the patient needs while on the sickbed and fighting the disease. Without relief, households skip meals, pull their children out of school, and send them to work or beg, he further said.