Goldman Sachs drops India’s GDP growth forecast for FY21 to 1.6 per cent

Repot calls for stronger policy measures from the RBI and the Centre

GOLDMAN SACHS-RESULTS/ (File) Representational image

Goldman Sachs on Wednesday said in its latest report that, as global GDP shrinks by two per cent in the coming year, India would see GDP growth rate drop by 420 basis points to reach 1.6 per cent in FY21 as the COVID-19 pandemic brings “an unprecedented sudden stop” to economic activity in India.

The 1.6 per cent growth figure is a sharp decline compared to earlier forecasts of 5.8 per cent (later dropped to 3.3 per cent) GDP growth.

According to a report by Bloomberg Quint, Goldman Sachs economist Prachi Mishra said that 150 basis points from India’s growth had been shaved off due to the result of a decline in global growth and the elasticity of India to the global slowdown. An additional 220 basis points was taken off due to the lockdown and a scenario where India attempts a staggered exit from this, with the rest of the decline coming from global and local disruptions to investment.

“Our new forecast for FY21 real GDP growth is 1.6 per cent, versus 3.3 per cent previous. We continue to expect a strong sequential recovery in the second half of the fiscal year, based on three assumptions. First, the 3-week nationwide lockdown, which is expected to be removed only in a staggered fashion, and social distancing measures reduce new infections over the next 4-6 weeks. Second, while the fiscal easing so far has been limited, our expectation is for further fiscal stimulus by the centre and the states. Third, we expect the RBI to continue with its monetary easing policy, along with liquidity infusion measures,” the report stated.

The report added that more forceful policy support could present upside risk, “the recovery could further be delayed if the pandemic is not brought under control globally and domestically for the next few months.”

It also mentioned that consumption would be badly hit as a result of the 21-day lockdown.

The Goldman Sachs report also predicted that GDP in the US would contract by 6.2 per cent and in the Eurozone by 9 per cent.

The news comes a day after Icra Ratings cut India’s GDP forecast by 4.5 per cent during Q4 2020 to 2 per cent for FY21.

Even without the pandemic, India’s GDP growth was expected to slide to 5 per cent levels—a decade-low for the country. The 1.6 per cent figure would be the lowest GDP growth India has seen since 1991.

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