India’s economy may see first contraction in 40 years on lockdown extension

The lengthening of the mandatory stay-at-home period to 40 days from 21 days will result in a direct output loss of more than 8 per cent over that time, according to Sonal Varma of Nomura Holdings.

India’s economy may be heading for its first full-year contraction in more than four decades after the government extended the lockdown to contain the coronavirus. The lengthening of the mandatory stay-at-home period to 40 days from 21 days will result in a direct output loss of more than 8 per cent over that time, according to Sonal Varma of Nomura Holdings. Varma and Kunal Kundu of Societe Generale GSC now predict a decline in GDP for the year to March 2021 of 0.4 per cent and 0.1 per cent, respectively. The economy had last contracted in 1980, when GDP shrank 5.2 per cent.

ALSO READ: India’s reduced GDP forecasts ‘too optimistic’: Ex-CEA Arvind Subramanian

“There will be indirect effects such as the persistence of the public fear factor even after the lockdown ends,” said Varma, head of Asia economics ex-Japan at Nomura. Besides, there will be an “impact on livelihoods of the unorganised workforce, and a sharp increase in corporate and banking sector stress, which are likely to further weigh on growth.” Bloomberg India economist Abhishek Gupta said, “A precipitous recession in India is inevitable. We are slashing our fiscal 2021 GDP forecast to a contraction of 4.7 per cent, down 10.7 percentage points from 6 per cent growth we expected before the coronavirus sideswiped the economy.”