Interview, Fireside Chat
India’s Response to the Economic Downturn
- India's FY21 (April 2020–March 2021) economic growth forecast was downgraded to 1.6%, a 420 basis point reduction from the pre-virus projection of 5.8%.
- A 220 basis point reduction in growth is attributed to a projected 25% wipeout in economic activity during a three-week lockdown, while transportation output may face a 10% peak monthly hit during this period.
- The outlook incorporates a 150 basis point downgrade for India resulting from a revised global 2020 average growth projection of minus two percent.
- The expected 1.6% growth is anticipated to be deeper than the recessions of the 1970s, 1980s, and 2009, though marginally milder than the minus 5% growth recorded in 1979.
- A strong sequential recovery in the second half of the fiscal year is projected based on a staggered removal of the three-week lockdown and a significant reduction in new infections over the subsequent four to six weeks.
- Additional fiscal support is expected from central and state governments beyond the current 0.8% of GDP stimulus package, with policy stimulus intensity anticipated to increase beyond the levels seen during the global financial crisis.
- The central bank is projected to maintain monetary easing policies alongside liquidity infusion measures.
- Foreign investor return timing remains uncertain, contingent on the evolution of the virus situation and the efficacy of policy responses in curbing new infections.
- Market stabilization is anticipated only after conditions are met, including an infection curve flattening, expanded fiscal stimulus, greater visibility on disruption depth and duration, and deeper asset undervaluation; currently, India is not yet meeting most of these criteria.
- The Indian Rupee is expected to weaken over a three-month horizon but should strengthen to approximately 72 over a 12-month period.