Prolonged economic crisis may hit rupee, FDI; these two factors may come to rescue

The external sector in 2020-21 should be cautiously monitored as a prolonged period of growth slowdown could adversely impact the external sector metrics, specifically, the rupee.

rupee, economic downturn, GDP, economic crisis,crude prices

India’s external sectors such as trade, current account, capital account, FDI, external debt, and exchange rate may take a severe hit if the economic downturn in the country continues for a long time. The external sector in 2020-21 should be cautiously monitored as a prolonged period of growth slowdown could adversely impact the external sector metrics, specifically, the rupee, said the SBI Ecowrap report. However, as a major relief so far, the country’s external sectors are at normal levels due to the low crude oil prices in the international market, consequently, India is likely to end the current fiscal with current account surplus if the oil prices remain stable, it added. 

The report also highlighted that India’s external debt position is sustainable with the external debt-to-GDP ratio at 19.8 per cent at end-June 2019, which is a saviour in these hard times. However, India’s FY21 median growth contraction is currently estimated at 5 per cent, which also shows that the economy may shrink up to 9 per cent from the year-ago level. 

Also Read: Tax reforms will reap results soon; rise in investment inevitable, says FinMin

The lockdown restrictions leading to a major fall in economic activity has already hit the businesses and industries across the country and now as the number of coronavirus testing is being increased, more numbers of coronavirus cases have surfaced lately. The total number of Covid-19 cases has crossed 2.5 lakhs in India, which poses a further threat to the economy even as the country is gradually lifting restrictions from various activities such as malls, hotels, etc. 

Meanwhile, with only a one-week lockdown at the end of the fourth quarter of the last fiscal, the country’s quarterly GDP growth fell to a mere 3.1 per cent in Q4 FY20. Further, in the month of April and May, industrial production, business optimism, and the flow of new orders fell drastically. Adding to the woes, the employment situation in the country also worsened due to a heavy job loss from industries and massive layoffs from corporations, taking the unemployment rate to a record high level.  

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