All is NOT well with India’s economy: GDP growth may fall to lowest in nearly 30 years

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Updated: April 28, 2020 12:34:33 PM

India Ratings and Research has further cut FY21 GDP growth forecast to 1.9%, which will be the lowest GDP growth in the last 29 years.

coronavirus, lockdown, fitch, india ratings, 1.9, economic forecast, GDP growthPrime Minister Narendra Modi said that there is no need to worry about the economy as the fundamentals are strong.

Coronavirus may show India a phase of an economic downturn that the country has not seen in decades. After various agencies cut India’s growth forecast for the current fiscal, India Ratings and Research has further cut FY21 GDP growth forecast to 1.9 per cent, which will be the lowest GDP growth in the last 29 years, that is, after FY92. Ind-Ra had earlier estimated a forecast of 3.6 per cent by the end of March, however, after considering the effect of lockdown, it revisited its growth estimates. Even as the concerns of the sagging economy has widespread by now, addressing the Chief Ministers of various states yesterday, Prime Minister Narendra Modi reportedly said that there is no need to worry about the economy as the fundamentals are strong.

The India Ratings report also suggested that it will take at least three quarters to match the economic growth took place in the last quarter, that too, considering the resumption of normal economic activities during the second quarter and festive demand during the third quarter of the current fiscal. While there are speculations of the extension of the lockdown, considering the rising number of cases, the report has estimated a contraction of 2.1 per cent in the current fiscal, if the lockdown continues beyond mid-May 2020 and a gradual recovery does not take place before end-June  2020. This can drag India to a level of lowest economic growth in the last 41 years and only the sixth instance of contraction since FY52.

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The government and the RBI are trying to keep no stone unturned in providing support to the economy. Both the government and the Reserve bank of India have announced fiscal and monetary measures that can give some support in this unfortunate time. The concerns for fiscal slippages have now been sidelined for some time and the only focus is on supporting the lives and livelihood of the people. Meanwhile, India Ratings has expected that the fiscal deficit of the government is likely to escalate to 4.4 per cent of GDP in FY21, compared to the budget estimate of 3.5 per cent.

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