India’s Economy to Decline for the First Time in 40 Years

The second most populous country on the planet could be bending the coronavirus contagion curve. But its economy will not recover quickly. For the first time since the pandemic began, India registered fewer weekly infections. As a result, totaling 94,372 cases compared to the 97,570 from the previous week. Yet, economic analysts do not seem confident in the quick economic resurgence of the country.

Moody’s and Fitch’s rating agencies estimated a contraction of the Gross Domestic Product of 11.5% and 10.5%, respectively, for the fiscal year, which runs from March 2020 to March 2021. The S&P agency had lowered its growth forecast to a 9% drop when its previous estimates limited the decline to 5%. The deepening of the fall is due to the collapse of the Asian country’s economy in the second quarter. It does not seem that the situation will be easily reversed. Moreover, the restriction measures are likely to affect the economy more.

The number of coronavirus cases exceeded 5 million in India this week. The number of deaths from the pandemic is close to 80,000. It ranks as the second country in the number of confirmed cases of the coronavirus and the third in fatalities.

S&P estimates that both consumption and investment will continue to slow down in these months until the virus’s transmission can be controlled. For the moment, between March and June, private consumption fell by 26.7% year-on-year, and investment decreased by 47.1%.

Future developments depend on the course of the coronavirus pandemic

In its June update of global economic forecast, the International Monetary Fund had already estimated India’s economic decline. The IMF forecasted that the country’s wealth would drop by 4.5% this fiscal year.

Gerry Rice, the IMF spokesman, pointed out last week that the organization supports the government’s response to the pandemic. It includes a fiscal stimulus focused on workers and low-income households.

However, S&P warns that the amount dedicated to stimulus measures is limited to 1.2% of India’s GDP, while in other emerging countries, it reached 3.1%.

But, in the end, how the situation develops will have a lot to do with managing the spread of the pandemic in the country. Including whether or not new massive confinements are necessary, and whether an effective vaccine is found to introduce it to the population. Despite this uncertainty, S&P predicts GDP growth of 10% for India in its fiscal year 2021 and 6% in 2022.