The gross domestic product (GDP) growth may see a substantial cut if a recession hits the global economy, an analyst said. The growth rate is expected to fall by 100-125 bps in FY21 if there is a global recession, CNBC TV18 reported citing Indranil Sen Gupta of BofAML. The International Monetary Fund (IMF) has already lowered the GDP growth rate of India in its latest update. IMF’s estimates are in sync with the projections of various other agencies whose estimates range between 6.6 and 7.5 per cent. The IMF follows Fitch, ADB and the RBI in slashing the earlier projection. All the institutions have commonly highlighted that both investment and consumption demand is currently low in India.
Due to weak monsoon rains, the rural demand has also been affected, leading to fall in sowing which is down 5-6 per cent. BofAML also expected the GDP growth be lower by 50-75 bps on account of poor agricultural growth. If rains disappoint further, inflation is also expected to inch up, Indranil Sen Gupta added. The upcoming Reserve Bank of India (RBI) bi-monthly monetary policy in August will be dependent on rains, he added. The monsoon rains are important for agriculture output and economic growth as about 55 per cent of India’s arable land relies on rainfall and agriculture forms about 15 per cent of a $2.5 trillion economy.
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In the week ending July 24, the rains were 35 per cent below average, after receiving 20 per cent less rainfall in the prior week. It has raised worries over the output of summer-sown crops. Even as major institutions have lowered India’s growth rate, it would still be the fastest growing major economy globally and much ahead of China, the Washington-based global financial institution said.