India’s economic growth likely to contract 4.5% in 2020-21 due to COVID-19

The Ministry of Finance in its macroeconomic June 2020 report has stated that India’s economic growth is expected to contract 4.5% in the current fiscal year. The report shows a 6.4% point fall in the Gross Domestic Product number than what the government had estimated in April 2020.

The Ministry highlighted that the shrinkage is because of the slower global economic growth amid the ongoing COVID-19 pandemic. The Department of Macroeconomic Affairs in its report underlined that the uncertainty around COVID-19 in the absence of vaccine poses a greater challenge.

The interruption in the economic activity also led to the shortfall in revenue collection during the first two months of the Fiscal Year 2020-21. Revenue receipts registered a negative growth of 68.9%, led by negative growth in all indirect taxes, personal income tax, and non-tax revenue.

India’s economic growth contacts amid pandemic:

The macroeconomic report stated that the inflation outlook continues to remain weak and the trajectory of inflation will continue to depend on the recovery rate from the virus.

The report further added that the net receipts for FY 2019-20 stood at 13.56 lakh crore which is 9.9% lower than the amount predicted in the revised estimates. The shortfall in direct tax collection has contributed to 75% of the shortfall in non-debt receipts. While the shortfall in indirect taxes was because of the shortfall in GST collections and customs.

However, the report mentioned that the government’s social welfare schemes and structural reforms will help. The department pointed out that exports have increased amid the COVID-19 pandemic and the lockdown because of the sharp decline in the imports and the low crude oil prices in the global market.

IMF’s World Economic Outlook Report (June 2020):

As per the June forecast of the IMF, in 2020 the Indian economy is set to contract by 4.5% because of slower recovery and the longer period of lockdown.

The latest forecast for India by IMF is in line with other forecasts that projected Asia’s third-largest economy to contract between 4% and 5% in 2020. The report added that the First- Quarter GDP was worse than expected (the few exceptions include, China, Chile, Malaysia, India, and Thailand among emerging markets and Germany, Australia, and Japan, among advanced economies). The report mentioned that the high-frequency indicators point to a more severe contraction in Second-Quarter, except in China as most of the country had reopened by early April 2020.