India’s GDP to contract 6.1% in FY21: Nomura

Representational image.

Representational image.  

Economic activity continues to remain weak and will lead to a 6.1% contraction in India’s GDP in the current fiscal, a foreign brokerage said on Tuesday.

The Reserve Bank is likely to pause at the upcoming policy review in August and cut rates by 25 basis points each in the October and December reviews, Japanese brokerage Nomura said in a report.

All the analysts expect a contraction in the GDP due to the COVID-19 pandemic, which has impacted both supply and demand forces in the economy since March. Official data also suggests a surge in inflation, which will further drag down the GDP in real terms.

Nomura said the June quarter will be the ‘nadir’ from a growth perspective and the economy will contract by 15.2% and the GDP will never come into the positive territory in the remaining part of this fiscal.

It estimated contractions of 5.6% in September quarter, 2.8% for December quarter and 1.4% in the March quarter, which will give a full fiscal GDP at negative 6.1%.

Overall, aggregate demand continues to lag aggregate supply, especially due to weak services activity and subdued urban consumption demand, it said.

Demand has taken a larger hit from the lockdown, likely reflecting higher precautionary savings by consumers amid rising income uncertainty. In contrast, the supply side is constrained only to the extent mandated by the rules, it said.

The brokerage said the growth estimates are arrived at after analysing ‘ultra’ high frequency indicators such as various mobility indices, employment and electricity demand to glean the direction of the growth trajectory.

On the monetary policy front, it said the RBI, which has already cut rates by a cumulative 1.15% since the beginning of the pandemic, is not done yet.

We do not believe this is the end of the easing cycle, because of the mounting growth risks, and relatively unscathed medium-term view of benign inflation, it said, adding that given the limitations on the fiscal side, the central bank will have to do heavy lifting.

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Printable version | Sep 27, 2020 12:36:10 AM |

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