The Indian economy will suffer its deepest contraction on record this fiscal year and recent government stimulus does not go far enough to significantly boost activity depressed by the coronavirus pandemic, according to economists polled by Reuters. With over 7.6 million coronavirus infections, India is the second worst-hit country in the world after the United States and the spread shows no signs of abating.
While the government has removed most restrictions imposed on businesses to slow the spread of the virus, the Reserve Bank of India issued gloomy economic forecasts earlier this month but kept interest rates unchanged citing rising inflation. That puts the onus on the government, which last week announced another round of fiscal stimulus to boost demand by $10 billion.
But the October 13-21 poll of 55 economists showed they were more pessimistic about this fiscal year’s outlook than just two months ago. Nearly 90 per cent of economists, 34 of 39, who responded to an additional question said the latest government stimulus was not enough to boost the economy significantly.
“While the measures introduced to push consumer spending and capital expenditure are clearly innovative within the confines of fiscal prudence, they do little to move the needle significantly in terms of the growth outlook this (fiscal) year,” said Sakshi Gupta, senior economist at HDFC Bank.
After shrinking a record 23.9 per cent in the April-June quarter, the Indian economy was forecast to contract 10.4 per cent and 5.0 per cent in the third and fourth quarter, respectively and merely stabilize in the first three months of 2021.That compares with contractions of 8.1 per cent and 1.0 per cent, respectively, and 3.0 per cent growth forecast in August. For the current fiscal year ending March 31, Asia’s third-largest economy was predicted to shrink 9.8 per cent, more than the RBI’s latest 9.5 per cent projection, and 26 of 55 economists saw a contraction of 10 per cent or more for the year.