benchmark Lending credence to the dire forecasts rating agencies and brokerages had been lately making, RBI governor Shaktikanta Das today said that GDP growth would likely remain in the negative territory in 2020-21.
Das said he was optimistic about a possible pick-up in growth impulses in second half, but added that everything was going to depend on how the pandemic situation plays out.
In the second half, Das said, the economy could get a boost from ideal conditions created by fiscal, monetary and administrative actions taken so far — possibly leading to a change in the situation.
Today’s surprise 40 bps benchmark rate cut, which took rates to their lowest levels since 2000, was the latest in a recent series of monetary actions aimed at lending support to shrinking GDP.
The governor blamed the collapse in demand for the coming GDP blow, saying that private consumption — the biggest pillar of India’s growth — has reeled from a massive virus/lockdown blow. He also pointed out the severe impact on government revenues owing to crashing demand for electricity and fuel.
Many brokerages saw the writing on the wall well before today’s surprise meeting. According to Goldman Sachs, the economy is heading for a 45% contraction in GDP in the quarter through June. It said Modi’s Rs 20 lakh crore package won’t have any immediate impact, and predicted -5% growth for the full FY.
Brokerages were already pretty certain of a coming full-year contraction in growth because the devastation that the lockdown has caused is without parallel. People in massive numbers have been left hanging by a thread — livelihoods gone, money running out, haphazard implementation of government’s life-saving measures not helping much.
According to CMIE, in April alone, an estimated 122 million Indians lost their jobs. Most of them were daily wagers.
Following Modi’s mega stimulus announcement and FM’s five-day decoder, it took ratings agencies and brokerages just a few days to connect the dots and decipher that FY21 could be the first year in 40 of a full-fiscal GDP contraction.
Brokerages and i-banks lately effected major cuts in their India projections largely because of (a) lockdown extension (b) unlikely short-term impact of reforms (c) the coming labour shortage (d) broken supply chains (e) crippled key business centres.
There were quite a few others apart from Goldman who picked holes in the stimulus and here’s what they said:
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Bernstein‘s forecast for FY21 is -7%, says Modi’s package lacks substantive push for consumption and manufacturing
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ICRA sees -5%, says it doesn’t address current economic needs
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Nomura too sees -5%, says Modi’s package aims for “maximum bang for minimum buck”
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SBI, -4.70%; it says the package does not do much to boost consumption in the short run
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CARE Ratings sees it at -1.5% to -1.6%, says it focuses on supply side with limited demand-generating measures
These forecasts came after various high-frequency data showed that demand in the economy is virtually zero now. Among the biggest sufferers are two of India’s biggest employers — services, which crashed last month, and auto, the collapse of which has been widely documented. Together, these indicators appear to supply irrefutable proof that the economy could fall off a cliff anytime now.
