According to the Investment bank Goldman Sachs, the Indian economy would improve in the Q3 and Q 4 after shrinking by 23.9% in Q 2 2020-21 ending June. The Q2 performance of the Indian economy marked the worst performance among the G20 countries and significantly below expectation of most economists. However, notwithstanding the possibility of improvement, the Indian economy would still remain in recession, albeit with a little less deeper than it was in Q2. The debate on V- shaped or U-shaped recovery of India continues but what will actually happen, depends on how the responses of the government and businesses unfold. Global economic environment would also have its imprint on the performance of the Indian economy.
The Investment bank made further significant adjustments to its GDP forecasts for India. According to the new forecast released on September 08, the India’s GDP has been predicted to record growth of -13.7% yoy and -9.8% yoy in Q3 ( ending September2020 )and Q4 ( ending December 2020) respectively as compared to -10.7% yoy and -6.7% forecasted previously. The new estimates imply that real GDP would fall by by 11.1% in calendar year 2020, and by 14.8% in FY21 (as compared to growth of -9.6%, and -11.8% in its previous forecasts).
The GDP growth rates were severely affected in Q2 and it continues to face a downward pressure in Q3 as well as Q4 due to the shock of Corona pandemic. The government has started the process of unlocking the economy after resorting to lockdown to stop the spread of the pandemic. In view of opening up the economy after lockdown the positive effects will show with a time lag as forecast by the investment bank.
Goldman Sachs has upgraded its expectations of a rebound next year. According to it “In Q2 (June quarter) 2021, real GDP growth is predicted to bounce back sharply on a year-over-year basis due to favorable base effects. Assuming ~70% of the lost output in June 2020 is recovered in June 2021; it predicted real GDP in Q2 2021 at +27.1% yoy.
Goldman Sachs, assuming a step down to more normal levels of sequential growth, said that it expects average annual GDP growth in CY21 and FY22 at 9.9% and 15.7% respectively (relative to 3.8% and 7.0% before). The forecasts assume that in level terms, real output in March 2022 would still be ~2% below its level in March 2020.
Most of the forecasts about the Indian economy would generally remain true as far as continuation of downward pressure on the GDP is concerned, but the quantities given may not remain so low. A domestic demand led economy like India can do much better if economic activities come on track and supply chains are restored. Employment in formal and informal sectors is responsible for maintaining high aggregate demand in the economy. Therefore, it is important that the government and private sector try to restore their economic activities, employment and wages levels at least at pre-Covid level. And this would require that government gives due consideration to the factors that help resume economic activities. Government has already announced stimulus measures to make this happen. However, a pro-active and professional and business like approach would be required to re-boot a derailed economy. India can do it if it wills.