INSUBCONTINENT EXCLUSIVE:
BENGALURU- India's already-slowing economy weakened to at least an eight-year low this quarter and will slow even more sharply in the next
six months due to the global coronavirus pandemic, a Reuters poll found.
With the virus spreading rapidly, Prime Minister Narendra Modi
announced a three-week nationwide lockdown on Tuesday which will have a huge detrimental impact on businesses.
India's informal sector,
the backbone of the economy, will be hardest hit as economic activity comes to a standstill.
"Just as everywhere else in the world, the
Indian economy is bracing for the fallout (from) this unprecedented event
We expect the lockdown to dramatically reduce GDP in subsequent quarters, while there will be prolonged economic gloom throughout the rest
of the year," said Prakash Sakpal, Asia economist at ING.
According to the Reuters poll of economists taken March 25-26, India's economy
will expand just 4.0% annually on a year ago in the quarter that ends on March 31, the weakest since comparable records began in early
2012.
That is also slower than the 4.7% recorded in the last three months of 2019.
The economy was forecast to grow 2.0% next quarter and
3.3% in the July-September quarter.
"We already changed our baseline scenario to our pandemic scenario recently
However, things are moving very fast and our pandemic scenario seems to be already too mild," said Hugo Erken, head of international
economics at Rabobank.
Under a worst-case scenario, the economy was forecast to grow by a median 0.5% in April-June, with one economist
predicting a 20% contraction
Still, only about one-quarter of those who answered this additional "worst-case" question said the economy would shrink.
The latest poll
findings on India growth line up with expectations elsewhere around the globe, where economists have been slashing their outlook repeatedly
and their worst case scenarios are fast turning into central forecasts.
For the current fiscal year, economic growth was forecast to average
4.7% and then slow sharply next fiscal year to 3.6% - its most lacklustre rate since the global financial crisis.
While that already shows a
grim outlook and how quickly the coronavirus-led economic hit is becoming clear, economists said growth would be much weaker than currently
predicted if the situation worsens.
"The risks to our new forecasts are still firmly on the downside
If the latest measures fail to contain the virus, or if the monetary and fiscal response proves too timid, the economy could even contract
this year," noted Shilan Shah, senior India economist at Capital Economics.
India on Thursday announced a 1.7 trillion rupees ($22.6
billion) economic stimulus plan that will be released through direct cash transfers and food security measures aimed at giving relief to
millions of poor hit by the nationwide lockdown.
Although a few economists said fiscal stimulus should be used to stoke a revival from this
unprecedented hit to an already slowing economy, many in the poll said the Reserve Bank of India should deliver rate cuts of up to one
percentage point.
But the RBI was expected to cut only 50 basis points at its March 31-April 3 meeting - taking the repo rate to 4.65%,
lagging its global counterparts who have been aggressively cutting interest rates and providing trillions of dollars in liquidity
measures.
Still, over three-quarters of contributors said the RBI was not late in taking a decision when other central banks like the
Federal Reserve and the European Central Bank have already approved drastic measures in emergency meetings.
"Of course, the earlier the
better but the RBI has already been pumping liquidity into the system through repo auctions and, probably, this allows some leeway for it to
wait until the scheduled meeting, which is now just a week away," added ING's Sakpal.