India, once the fastest growing economy, is set to post the steepest quarterly decline in gross domestic product, as it moves to become the global coronavirus hotspot.
The world's fifth-largest economy, faltered in its steepest contraction on record in the April-June quarter making it the worst slump in this decade.?
India's economy was already facing a defeat even before the pandemic struck.
The International Monetary Fund (IMF) in June projected a sharp contraction of 4.5 per cent for the Indian economy in 2020, a ¡°historic low,¡± citing the unprecedented coronavirus pandemic that has nearly stalled all economic activities.
The IMF¡¯s record reveals that this is the lowest ever for India since 1961.
In July, former RBI governor Raghuram Rajan while speaking at a webinar organised by the Princeton University¡¯s Bendheim Centre for Finance, said India entered the pandemic-led health crisis with declining growth, poor fiscal situation and legacy NPAs in Prime Minister Narendra Modi¡¯s first term, even as the government in the second term focussed on ¡°BJP¡¯s majoritarian objectives rather than repairing an impaired economy.¡±
¡°India didn¡¯t fix the house and entered the crisis with a fiscal deficit of 9 per cent or so of GDP and slowing growth. Further with pandemic-related revenue shortfalls and the decline in GDP, this could rise to 13-15% of GDP even without additional spending. Also, the government is focussed on credit rating for fear of downgrades,¡± he said, as reported by Indian Express.
In April-June, India suffered a contraction for the first time since India began maintaining quarterly records in 1996.
According to the data released by the National Statistical Office (NSO) showed GDP in the April-June quarter of 2020-21 slumped 23.9 per cent compared with growth of 3.1 per cent in the previous (January-March) quarter.
Consumer spending - the main driver of the economy - dropped 31.2 per cent year-on-year in April-June compared to a 2.6 per cent fall in the previous quarter, data showed, while capital investments were down 47.9 per cent compared to a 2.1 per cent rise in the previous quarter.
Continuing restrictions on transport, educational institutions and restaurants have hit manufacturing, services and retail sales, while keeping millions of workers out of jobs.
Prime Minister Narendra Modi announced a $266 billion stimulus package in May, including credit guarantees on bank loans and free food grains for poor people, but consumer demand and manufacturing have yet to recover.
The Reserve Bank of India, which has reduced the benchmark repo rate by a total of 115 basis points since February, is expected to cut interest rates to boost growth after keeping them on hold this month amid rising inflation.
Manufacturing has already entered recession as output fell 39.3 per cent in April-June after falling 1.4 per cent in the previous quarter, and construction and trade services plunged by around 50 per cent.
The coronavirus has been spreading in India faster than anywhere else in the world, with more than 3.6 million people already infected and a death toll of over 64,400.