Economy will contract 4.5% due to COVID-19 lockdown: Govt
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Investor wealth plummeted by nearly Rs 8 trillion within minutes on April 12.

Economy will contract 4.5% due to COVID-19 lockdown: Govt

A finance ministry report on Monday (July 6) said that the country's gross domestic product (GDP) will contract 4.5 per cent as predicted by International Monetary Fund, in the current fiscal due to unprecedented supply-demand shocks induced by the COVID-19 pandemic.


A finance ministry report on Monday (July 6) said that the country’s gross domestic product (GDP) will contract 4.5 per cent as predicted by International Monetary Fund, in the current fiscal due to unprecedented supply-demand shocks induced by the COVID-19 pandemic.

In its macroeconomic report for June, released today, the department of economic affairs (DEA) of the Union finance ministry said that the uncertainty associated with flattening of the COVID-19 curve, in the absence of a vaccine, poses a serious challenge.

“In line with downward revision of global growth, India’s growth has been forecast at (-) 4.5 per cent in 2020, a 6.4 percentage point downward revision compared to the April 2020 forecast,” the report said referring to the IMF’s revision of global growth to (-) 4.9 per cent.

The report comes days after the Unlock-2 phase of nationwide lockdown, imposed on March 25, was announced, further easing restrictions on economic activities.

The report said that April was a month of economic standstill, and restrictions on various activities were eased in May as the government made a courageous choice of supporting livelihoods that made the containment of the pandemic more challenging.

“As restrictions were further eased, the country entered the unlock phase in June, 2020. The loss of economic output from more than two months of lock-down was first triggered from the supply side as labour stayed away from work. The demand side caused further loss of output as consumption of goods and services dependent on customer mobility fell.”

It said that this twin supply-demand shock on output subsequently led to loss of income, which caused further decline in consumption resulting in further loss of output.

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“Owing to these unprecedented COVID-19 induced supply-demand shocks, IMF’s June, 2020 WEO update projects growth of India’s output at (-)4.5 per cent in 2020-21 and that of world’s at (-) 4.9 per cent,” the report said.

The report said that policy environment was made conducive beginning March, 2020 when the Reserve Bank of India (RBI) and the government were able to correctly anticipate the economic downturn following the outbreak of the pandemic.

“RBI significantly reduced the repo rate by 75 basis points (bps) to 4.4 per cent and further to 4 per cent in May and injected huge amount of liquidity of approximately 3.9 per cent of GDP,” it said. The RBI also provided relief to borrowers allowing companies a three-month moratorium on loan repayments while SEBI protected the lenders by relaxing the norms related to debt default on rated instruments, it said.

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“The Government of India on its part executed a well laid out strategy wherein it imposed
lock-down to allow states to ramp-up their health and testing infrastructure while
implementing ‘Pradhan Mantri Garib Kalyan Yojana’ to provide immediate cash support
to the needy,” the report added.

India has reported a total of 6,97,413 cases of COVID-19, and 19,693 related deaths, as per the Union health ministry’s morning update on Monday. It has already surpassed Russia as the third worst-affected country across the globe due to the pandemic.

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