Economists Predict Worst Recession Ever for India Amid Lockdown Extension

Economists have predicted that India will face its worst recession ever as the country announced another nationwide lockdown extension. India’s economy is forecasted to contract 45% in the second quarter following the Rs 20 lakh crore coronavirus relief stimulus package which some economists call “aimless” and a “lost opportunity.”

Economists Predict Worst Recession Ever for India

Two leading global investment management firms, Goldman Sachs and Bernstein, have predicted that “India will experience its deepest recession ever,” according to reports. The forecasts came as the Indian government extended the country’s nationwide lockdown until May 31 while easing some restrictions to boost economic activity during the coronavirus crisis. India’s lockdown was introduced on March 25 and has been extended several times.

Goldman Sachs India Securities’ chief economist Prachi Mishra and chief Asia economist Andrew Tilton estimated in a report dated May 17 that India’s gross domestic product (GDP) will contract by an annualized 45% in the second quarter compared to the prior quarter. The firm previously forecasted a slump of 20% for the country with approximately 1.4 billion people. Goldman Sachs’ estimates imply that India’s real GDP will plunge by 5% in the 2021 fiscal year, deeper than any other recession the country has ever experienced. The economists explained:

The deeper trough in our Q2 forecasts reflects the extremely poor economic data we have received so far for March and April, and the continued lockdown measures, which are among the most stringent across the world.

Meanwhile, analysts at Bernstein have forecasted an even sharper contraction of 7% for India. As for the recovery, Goldman Sachs’ economists expect a rebound of 20%, stronger than previously predicted. Subsequent quarterly growth estimates were left unchanged at 14% and 6.5%.

Indian Government’s Reform Measures Criticized

The predictions by Goldman Sachs and Bernstein followed Finance Minister Nirmala Sitharaman’s multi-day briefings on the country’s Rs 20 lakh crore ($265 billion) economic stimulus package, equivalent to about 10% of India’s GDP. The last measures of this coronavirus relief package were unveiled on Sunday.

However, some people have pointed out that the stimulus package includes measures already announced by the Reserve Bank of India (RBI), such as the liquidity measures. Bloombergquint commented, “While the headline number is huge, the actual government spending remains small with the RBI’s earlier measures forming the biggest part.” Bernstein analysts Venugopal Garre, Ankit Agrawal, and Ranjeet Jaiswal were quoted by the New Indian Express publication as saying:

While the package started on important aspects but the need to announce measures that add up to this top-down number made the entire package aimless, with several generic announcements which should ideally have been a part of a normal economic agenda.

While the Bernstein analysts applauded a few measures in the stimulus package, they concluded: “Overall, we see it as a lost opportunity.” The analysts elaborated: “The focus should have been on urban, corporates, consumption, infra and impacted sectors, but it was on rural and strange-end markets such as space program. Rural is in control, as farm incomes are protected (good harvest season and a good start to summer crop sowing). Yet, several measures (in the form of loans) were announced for Agri, some of which are already existing programs.”

In addition, Goldman Sachs’ economists believe that the Indian government’s structural reform measures “are more medium-term in nature, and we therefore do not expect these to have an immediate impact on reviving growth.”

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