India’s Double-Digit Growth Forecast in Peril

  • Just two weeks ago, the International Monetary Fund upgraded India’s economic growth forecast to 12.5% — the quickest rate among major economies. Now, as Covid-19 cases surge the most globally, that bullish view is looking increasingly in doubt.
  • In Delhi, the streets are mostly empty and the markets nearly deserted with almost all shops closed in response to curbs put in place by the local administration to fight the pandemic. The scene is not so different in Mumbai, the financial hub that accounts for 6% of the national output.
  • Yet for now, Prime Minister Narendra Modi is shunning a nationwide lockdown and encouraging states to keep their economies open. And for that reason, economists are signaling risks to their forecasts, but not tearing them up all together just yet.
  • “This second wave of virus cases may delay the recovery, but it is unlikely in Fitch’s view to derail it,” the ratings company said in a 22 Apr 21 statement. It stuck to its 12.8% GDP growth forecast for the 12 months through Mar 22.
  • The Reserve Bank of India in Apr 21 also retained its growth estimate of 10.5% for the current fiscal year. But Governor Shaktikanta Das said the surge in infections impart greater uncertainty and could delay economic activity from returning to normalcy.
  • The reluctance by economists to revisit growth forecasts just yet possibly stems from expectations for the crisis to blow over soon. Fueling that confidence is a vaccination drive that’s covered more than 100 million people of the nation’s over 1.3 billion total, besides the promise of continued support from fiscal and monetary policy makers.
  • With almost 17 million cases in total, it is the second-worst affected nation globally, lagging only the U.S. Bloomberg’s Virus Tracker shows that only around 11 out of 100 people in India have received a vaccine dose.
  • While the outbreak has overwhelmed the nation’s hospitals and crematoriums, it’s also hit consumer confidence in an economy that was only beginning to recover from an unprecedented recession in 2020.
  • Those concerns have contributed to the nation’s benchmark stocks index becoming Asia’s worst performer in Apr 21, while the rupee put up by far the region’s poorest show over the past month as traders factored in the impact of the curbs on economic growth.
  • Although policy makers have signaled they are ready to take steps to support growth, a failure to flatten the virus curve could exert pressure on monetary and fiscal policies that have already used up most of the conventional space available to them.

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