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India's economy in deep trouble, growth may contract 5 % in FY21

News Agencies | Updated on: 26 June 2020, 18:52 IST

S&P Global Ratings said on Friday that Indian economy is in deep trouble with growth expected to contract by 5 per cent in the current financial year 2020-21.

"India's economy is in deep trouble. Difficulties in containing the virus, an anemic policy response and underlying vulnerabilities -- especially across the financial sector -- are leading us to expect growth to fall by 5 per cent this fiscal year before rebounding in 2021," it said.

The pandemic remains the key driver of the country's prospects. "Even though lockdowns have eased in less populated areas, urban growth engines are still held back by rising infections, severe mitigation policies and consumer risk aversion."

A normal monsoon, low oil prices, and supportive external financial conditions will only partly offset these effects, said S&P's in a report titled 'Asia Pacific Losses Near $3 Trillion As Balance Sheet Recession Looms' authored by Shaun Roache and Vishrut Rana.

"We expect the Covid-19 pandemic to leave lasting scars on the Asia Pacific with the extraordinary measures needed to shore up economies leading to higher debt, weaker balance sheets, and less appetite for spending in the future," they wrote.

Investment is likely to stay sluggish, especially in the private sector. "Even if state-owned enterprises spend more, we still anticipate less productive capital, lower potential output and a permanent two to three per cent shrinkage of most economies compared to the pre-COVID trend.

S&P projected that Asia Pacific's economy will contract by 1.3 per cent in 2020 but show 6.9 per cent growth in 2021, implying 2.7 trillion dollars of lost output over these two years, even assuming broad containment of the coronavirus.

It saw China's economy expanding by 1.2 per cent in 2020 before growth surpasses 7 per cent next year. "The largest downward revision of our growth estimates is for Japan where we now expect a 5 per cent contraction in 2020 as consumers save more."


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First published: 26 June 2020, 18:52 IST