The COVID-19 pandemic will hit India the hardest among the world’s major economies and its effects will be felt long after the pandemic has subsided, said Oxford Economics, a global forecasting and quantitative analysis firm.
The pressure on the Indian economy was building up even before COVID struck, but it will probably worsen, said Priyanka Kishore, head of economics for South Asia and South-East Asia, in her report. Kishore projects potential gross domestic product (GDP) growth for India at 4.5% over the next five years, lower than 6.5% before the coronavirus.
“It’s likely that the headwinds already hampering growth prior to 2020 — such as stressed corporate balance sheets, elevated non-performing assets of banks, the fallout in non-bank financial companies, and labor market weakness — will worsen,” she said. “The resulting long-term scars, probably among the worst globally, would push India’s trend growth substantially lower from pre-COVID levels.”
Prime Minister Narendra Modi, however, is upbeat about making India a $5 trillion economy by 2025 from the present $2.8 trillion. The Centre has announced several schemes and measures to fulfill Modi’s dream, but they have fallen short of expectations, thus inadvertently putting pressure on the Reserve Bank of India to step in.
A paper published by the Reserve Bank of India last week predicted Asia’s third-largest economy has entered a historic technical recession.
The International Monetary Fund (IMF) says India’s GDP will shrink 10.3% in the year to March 2021 as a result of the sudden lockdown imposed by the Modi government.
“All supply-side factors feel the effect, with only human capital’s contribution unchanged from the pre-virus baseline,” Kishore said. “Capital accumulation takes the biggest hit because we expect balance-sheet stresses to worsen following the crisis, lengthening the investment recovery cycle.”