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May 10, 2020

India’s GDP may contract 5.2% in FY21, Due to Coronavirus Crises

by facelesscompliance in Corporate Law, GST

India’s GDP may contract 5.2% in FY21, says Nomura & FY21 Q2 will contract 20% says Goldman Sachs due to Covid19 Coronavirus Crises

Nomura has cut India’s FY21 GDP growth forecast to Negative -5.2 per cent against. negative -0.4 per cent earlier. The global brokerage also pegged the fiscal deficit at 5.5 to 6 per cent of GDP after the government decided to borrow Rs 12 lakh crore compared to Rs 7.8 lakh crore estimated earlier

The real GDP growth to fall to -0.5 per cent y-o-y in 2020 (vs 5.3 per cent in 2019) and by -0.4 per cent in FY21 (vs. 4.6 per cent expected in FY20)

The government recently announced that it will borrow Rs 4.2 lakh crore from the market. The total gross borrowing target has now increased from Rs 7.8 lakh crore budgeted for FY21 to a staggering Rs 12 lakh crore. The government needs additional money to meet coronavirus-related expenditure. It particularly needs the money to provide support to states gasping for funds.

Analysts at other global brokerage Goldman Sachs also expected the economy to contract steeply in FY21. “We expect GDP growth of -20 per cent in Q2; while we have upgraded our expectations of recovery after mid-year, with a 10 per cent and 14 per cent q-o-q annualised GDP gain in Q3 and Q4, respectively,” it said in a note.

Moody’s recently warned of the country’s high fiscal deficit and high government debt as among the negative factors pushing credit risks higher. In late March, the RBI advanced its policy review meeting by a week and slashed rates by 0.75 per cent to support the economy

The government Stimulus package for SMEs and Business is in wait mode as FM is still struggling to come with consensus. This despite several warnings by rating agencies for downgrade India’s growth to negative

It is interesting to see how government plans to review the business and growth. The railways have already stated their intentions to start operation on small scale from 12 May 2020. It seems government accross the world need to balance economic activity and risk of virus communal spread which is a challenging task in India

The recent slow down in GST collections and TDS collection would be a worry sign.

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