Indian economy in shambles, Matters only to get worse from bad: Bloomberg

Bloomberg report shows how the Indian economy is in a disturbed stage, predicts a recession drag

Indian economy in shambles, Matters only to get worse from bad: Bloomberg
Image Courtesy: National Herald India

With more than 5,308,014 cases and a race towards becoming the most infected country in the world, India’s economic prospects which were already bad, are becoming worse.

A report by Bloomberg, shows that the Indian economy is in a heavily turbulent stage, their economists stating:

“India went into the Covid-19 pandemic already suffering a downward trend in growth potential. We expect a 10.6% contraction in fiscal 2021, rebound in 2022, and slower path for growth as scars from the virus recession drag on the remaining years of the decade,” said economist Abhishek Gupta.

India is “likely to see a shallow and delayed recovery in corporate sector profitability over the next several quarters,” said Kaushik Das, chief economist at Deutsche Bank AG in Mumbai, who has downgraded his fiscal year growth forecast to -8% from -6.2%. That will “reduce the incentive and ability for fresh investments, which in turn will be a drag on credit growth and overall real GDP growth,” he said.

The plunging capital spending worldwide is another worry for the Indian economy as investors are pulling out or stopping the investments and the rising number of cases aren’t helping at all. Indian companies are pushing back big-ticket investment plans in another sharp blow to an economy that is hurtling toward its first contraction in more than four decades. Billionaire Kumar Mangalam Birla’s Hindalco Industries Ltd. plans to cut capital expenditure by as much as 40% globally as the company plans to conserve cash, while Tata Steel Ltd., India’s biggest steelmaker, will see such spending drop to about half of last year’s level.

Private sector investments were anaemic even before the virus outbreak, as corporates stepped up loan repayments following a debt-induced expansion in the aftermath of the global financial crisis. When a slowdown followed, companies sought to de-leverage and repair their balance sheets. Several projects turned sour in the process, forcing banks to write-off loans and end up with one of the highest stressed-asset ratios in the world.

The failure to get infections under control will set back business activity and consumption — the bedrock of the economy — which had been slowly picking up after India began easing one of the world’s strictest and biggest lockdowns that started late March. Local virus cases topped the 5 million mark this week, with the death toll surpassed only by the U.S. and Brazil.

Economists and global institutions like the Asian Development Bank have recently cut India’s growth projections from already historic lows as the virus continues to spread. Goldman Sachs Group Inc. estimates a 14.8% contraction in gross domestic product for the year through March 2021, while the ADB is forecasting -9%. The Organization for Economic Co-operation and Development sees the economy shrinking by 10.2%. Analysts at India Ratings & Research, the local affiliate of Fitch Ratings, see India Inc.’s CAPEX plans to shrink 20%-26% in the financial year to March 2021 from a year ago. They see no meaningful recovery in private sector investment activity before 2025 in the absence of a “broad-based pick-up in domestic and external demand, faster resolution of stressed assets and deep structural reforms.”

“While the second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve,” said Sunil Kumar Sinha, principal economist at India Ratings and Research Ltd., a unit of Fitch Ratings Ltd. He now sees India’s economy contracting 11.8% in the fiscal year, far worse than his earlier projection of -5.8%.

Goldman Sachs’s latest growth forecast came last week after data showed gross domestic product plunged 23.9% in the April-June quarter from a year ago, the biggest decline since records began in 1996 and the worst performance of major economies tracked by Bloomberg.

The central bank will likely release its own growth forecast on Oct. 1 when the monetary policy committee announces its interest rate decision. In August, the RBI said private spending on discretionary items had taken a knock, especially on transport services, hospitality, recreation and cultural activities.

“By all indications, the recovery is likely to be gradual as efforts toward reopening of the economy are confronted with rising infections,” Reserve Bank of India Governor Shaktikanta Das told a group of industrialists.

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