GDP Growth

GDP Growth

Every year forecast is made for the coming years by analyzing the previous years growth of financial activities. These forecasts help to alter the government plans in order to make sure what norms or plans are best suited and are needed to make our country in the path of success and in order to achieve the long-term goals of a country.

The factors which are kept in mind are GDP growth, inflation, macroeconomic stability, economic growth and various other such factors. The fiscal deficit target for this fiscal year starting April 1, had been fixed at 3.5 per cent. The government had forecasted real economic growth will pick up to 6.0% to 6.5% in the fiscal year beginning April 1 this year only, but warned that it could mean high fiscal deficit. The FRBM committee headed by N K Singh had recommended fiscal deficit to be cut to 2.8 per cent in 2020-21 fiscal and to 2.5 per cent by FY2023, but situation might prove it wrong. The government had also set a target of 5-trillion economy by the year 2024. But the situation is demanding much more than which was expected. Today if India want to achieve the dream of 5-trillion economy than the growth rate should be more than 8.5 percent in succession in order to get back on track and achieve their target.

The country-wide shut down due to COVID-19 issues will trigger a permanent deterioration of 4 per cent of India's GDP. India will need to expand 8.5 per cent in succession for three years to be back on track according to ratings firm Crisil. Rating firms and several brokerages have already twice updated their GDP forecast since the COVID-19 pandemic resulted in country-wide lock-downs halting economic activity throughout the country and other parts of the globe.  According to D K Joshi (chief economist of Crisil), "Protecting the jobs of India would be a major challenge (for which) fiscal policy must be more proactive". Crisil projected a fiscal stimulus of approximately Rs 3.5 lakh crore. "Fiscal assistance needs to go beyond impoverished households in size and scope to also include businesses".

Due to this situation, regular wage earners are the most affected and those without job protection are the least. Casual labourers in India constitute nearly 25 percent of the workforce and will take the first hit due to shutdowns and layoffs. So far, policy support has been largely through monetary policy to impact sector through liquidity support and also regulatory relaxation on loan repayment. But fiscal space to invest is somewhat constrained by Centre's and states' tight fiscal position. MSMEs, particularly at the liquidity front, are more vulnerable than larger players. Crisil's research indicates that MSME working capital will extend by more than a month, even in a comparatively milder slowdown than we expect this fiscal one. Crisil expects the banking sector to bear a major brunt of the shutdown as well. It expects NPAs in the banking sector to grow from an estimated 9.6 per cent as of March 2020 to 11-11.5 per cent by March 2021, with slightly lower recoveries and increasing slippages. NPAs are expected to swell, with microfinance, MSME loans and wholesale / developer financing seeing the sharpest jump, for non-bank finance companies as well. The EBITDA earnings of Indian companies before interest, taxes, depreciation and amortization are expected to decline by 15%, assuming a real GDP growth of 1.8%.

Covid-19 created a financial crisis and not just a health emergency. For India, even in the midst of a recession, it could not have come at a worse moment. The nation is attempting to stop the outbreak. They shut down schools and colleges, malls and cinemas. It will not allow any international flights to land in India for a week. All are staying in today, following the call from Prime Minister Narendra Modi. It is both a health emergency and a financial crisis — and nobody knows how bad this will be and how long it will last. The International Labor Organization predicts up to 25 million workers will be affected by the Covid-19. It's expected to cost the global economy between $1 trillion and $2 trillion in 2020, according to the United Nations Conference on Trade and Development (UNCTAD). Even though India's pandemic had affected just 30 people in early March, UNCTAD said the country's trade impact could be around $348 million. According to the latest assessment by the World Bank, India is projected to rise from 1.5 per cent to 2.8 per cent. Similarly, the IMF forecast a 1.9 per cent GDP growth for India in 2020, as the global economy suffered the worst recession since the Great Depression in the 1930s. The pandemic and consequent shutdown has affected a number of sectors like MSME, hospitality, civil aviation, agriculture and the associated industry. To relieve the pain and suffering, last month's finance minister announced a Rs 1.7 lakh crore stimulus that included three-month free food grains and cooking gas to the needy, and cash doles to women and vulnerable senior citizens as it tried to ease the economic effect of the nationwide lockout. According to the announcement, for the next three months, 80 crore poor ration card holders would each receive 5 kg of wheat or rice and 1 kg of preferred pulses free of cost per month, while 20.4 crore women with Jan Dhan bank accounts will receive Rs 1,500 cash aid spread over three months.

One of the reports suggest that this is the world’s biggest lockdown and is impacting India adversely. The Covid-19 pandemic would diminish world production by 3 percent in 2020, the IMF said the first after the severity of the epidemic became apparent in the April update of its World Economic Outlook (WEO) published in Washington, DC. According to the Society of Indian Car Manufacturers Association, there is a loss of some 2,300 crore for the overall ecosystem every day of lockdown and thus factory closure.

India’s Gross Domestic Product (GDP) growth rate has been slashed to 1.9 per cent for the year 2020-21. If the lockdown persists beyond mid-May 2020 and a gradual recovery takes root only at the end of June 2020, GDP growth may slip further down to negative 2.1%, the lowest in the last 41 years and only the sixth contraction since FY 1951-52.'