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Review: What is India’s GDP growth projection by different agencies?

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Multiple international rating agencies have been revising their GDP growth estimates for 2020 and beyond because of the uncertainties around COVID-19 induced lockdowns and the economic slowdown. Here is a quick review of the GDP growth estimates for India and the other major economies by different rating agencies. 

According to the Ministry of Statistics & Program Implementation’s (MoSPI) press release on 31 August 2020, India’s GDP for the first quarter of financial year 2020-21 contracted by 23.9% as compared to that of the same quarter during the financial year 2019-20. In other words, India’s GDP growth rate in Q1 of 2020-21 was -23.9%. The large contraction can be attributed to the nationwide lockdown due to the COVID-19 pandemic. Not just in India, but globally, many economies have contracted in the April-June quarter of 2020. A detailed story on the GDP growth/contraction in various countries in April-June quarter of 2020 has already been published by Factly

Gradually, countries including India have been easing restrictions imposed to contain the spread of the virus with detailed operating guidelines to be followed while opening up.  Economic activity is also picking up in a phased manner and hence, we might see improved GDP numbers for the July to September quarter of 2020.  In this story, we take a look at the GDP forecast for India as well as few other major economies, as predicted by multiple prominent agencies. 

India’s GDP growth estimated to be at -4.5% as predicted by IMF

The International Monetary Fund (IMF) in June 2020 projected the global GDP growth to be at   -4.9% in 2020, worse than the projection made in April 2020 at -3%. In January 2020, before the pandemic spread across the world, the projection was a growth of 3.3%. 

IMF estimated India’s GDP to grow at 1.9% in its April 2020 forecast. However, the revised forecast in the June 2020 report estimates a contraction by 4.5% in 2020 calendar year. The projections made in June for G7 countries are negative as well. France and Italy are projected to experience a contraction of 12.5% and 12.8% respectively while UK’s contraction was projected to be at 10.2% in 2020. Meanwhile, China was expected to witness an increase in GDP by 1%, probably because of the outbreak in the early part of 2020 as against the rest of the world. 

COVID-19 has resulted in the deepest global recession in eight decades

The World Bank projected the global growth to be at 2.5% in 2020, slightly more than the global growth in 2019 at 2.4%, in its report published in January this year. However, following the coronavirus outbreak, in the June 2020 version of the report, the global economy has been projected to contract by 5.2% in 2020, which the World Bank termed as ‘the deepest global recession in eight decades’. 

India’s real GDP which was projected to increase by 5.8% in 2020 has been re-estimated to contract by 3.2%. The forecast for USA and Japan shows contraction of 6.1% while the GDP of Euro Area is expected to contract by 9.1%. China’s GDP is projected to go up by 1%. 

OECD forecasts India’s GDP to contract by 10.2%

The Organization for Economic Co-operation and Development (OECD), in March 2020, re-forecasted the GDP growth for 2020 and 2021 taking into consideration the risk due to COVID-19. Even prior to the pandemic, the growth was weak and stabilizing. The world’s growth for 2020 estimated at 2.9% in November 2019, dropped to 2.4% and has been projected to contract by 4.5% in the March and September 2020 versions of the report. 

India’s GDP growth for 2020, projected at 6.2% in November 2019, was slashed to 5.1% in March 2020 and has been projected to contract 10.2% in the September 2020 forecast as a result of lockdowns being extended. The GDPs of Italy and UK are expected to contract by about 10% while only China will witness a positive growth at 1.8%. However, in 2021, India’s GDP is projected to rebound to 10.7% growth. 

Fitch ratings project India’s GDP to contract by 10.5% in 2020-21

Fitch Ratings is an American credit rating agency which is one among the ‘Big 3 Credit Rating Agencies’ recognized in the US. As per Fitch’s forecast in March 2020 , the global growth was projected at 1.3% which was later re-estimated at -4.4% in September 2020. Since COVID-19 cases in India were low in March 2020, India’s GDP growth for financial year 2020-21 was projected to contract by 5%. After recording one of the sharpest GDP contractions in the world in the first quarter of 2020-21, India’s GDP projection for 2020-21 has been slashed to -10.5% due to ‘looming deterioration in asset quality in the financial sector’. China’s GDP is expected to grow by 2.7% while all the G7 countries’ economies are projected to contract with -11.5% for UK and -10.5% for France being the highest. 

South Asia’s GDP is expected to contract by 6.8%

Among the neighbouring countries, Maldives GDP is expected to contract by 20.5%, more than India’s, whose GDP has been forecast to contract by -9% (from -4% projected in June 2020), according to the Asian Development Bank. The bank has also projected a negative GDP growth for Sri Lanka, Afghanistan, and Pakistan whereas a positive growth for Bangladesh, Bhutan, and Nepal at 5.2%, 2.4% and 2.3% respectively, as of September 2020. Overall, South Asia’s GDP is projected to contract by 6.8% in 2020 due to the pandemic. 

Source: Asian Development Bank, September 2020

The projections made for India’s GDP growth in the upcoming year, by domestic as well as international rating agencies has been compiled in the following table. The first annual contraction in India’s GDP after 40 years has been projected by Moody’s. 

Agency
Projections before Q1 GDP figures were out
Projection for FY21 in September 2020
Moody’s-4% (June 2020)-11.50%
India Ratings -5.3% (June 2020)-11.80%
Asian Development Bank* -4%(June 2020)-9%
FITCH 5.1% (March 2020)-10.50%
OECD*5.1% (March 2020)-10.20%
CARE Ratings -6.4%  (July 2020)-8% to -8.2%
CRISIL -5% (May 2020)-9%
* Projections are for calendar year 2020

Projection of GDP by different agencies has been arrived at with assumptions such as rate of infection, absence of financial policies, etc. In the subsequent financial year, 2021-22, all agencies are expecting India’s GDP to rebound and grow between 3% to 10%. The finance ministry, in its monthly economic report for August 2020 stated that India is witnessing a sharp V-shaped recovery. 

Source: Monthly Economic Report, Ministry of Finance

However, there is still a lot of uncertainty around the pandemic and its effect on the economy. With India crossing 50 lakh cases recently and with speculations about a possible second wave of infections makes these projections all the more difficult. There is no certainty on how long the pandemic induced slowdown will last. India’s GDP de-growth of a staggering -23.9%, worst among G-7 countries & China was surprising since such a steep decline was not projected earlier. It should also be remembered that India’s GDP was already declining since the first quarter of financial year 2018-19, much before the pandemic set in.  The stringent lockdown due to the pandemic aggravated the situation. 

Featured Image: India’s GDP growth projections

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