Quarterly growth slides to 3.1 per cent, more pain feared

Worries centre around Covid surge, slow recovery

India’s growth slowed sharply in the three months to March -- not as severely as analysts had forecast -- but the numbers gave a taste of the Covid-19 economic pain to come.

Gross domestic product expanded by 3.1 per cent in the final quarter of the 2019-20 financial year, handily beating economists’ forecasts in a Bloomberg poll of 1.6 per cent growth. But economists said the fourth-quarter numbers will likely be revised downward as the lockdown imposed by the government to curb spread of Covid-19 hurt data collection for the quarter.

With India’s coronavirus caseload skyrocketing, analysts also expect Prime Minister Narendra Modi to announce on the weekend a two-week extension to the two-month lockdown that’s hammered economic activity. Lockdown 5.0 will probably focus on maintaining restrictions on big cities that are Covid-19 hotspots while easing curbs elsewhere.

The government began allowing more activities earlier in May to support industry and lessen the financial pain for India’s poorest. But relaxation of the lockdown has coincided with a sharp surge in cases _ India’s coronavirus tally makes it now the world’s ninth worst-hit country -- and epidemiologists project the number of Covid-19 infections could hit one million within weeks, overwhelming the already struggling health sector. Economists worry that loosening curbs too soon will also result in new stringent lockdowns being imposed, delaying overall economic recovery.

India logged 7,467 new cases in the last 24 hours Friday, the highest single-day leap, lifting the total to 165,799, the health ministry said.

“A premature lifting of restrictions increases the probability of policymakers having to slam on the brakes and reimpose more stringent containment measures over the coming months,” said Capital Economics economist Shilan Shah, adding this could mean “the recovery could be even slower and more fitful than we are expecting.”

The deceleration in growth for the quarter to March 31 came as economic activity dried up amid government measures to control the coronavirus pandemic that culminated in the lockdown which came into effect on March 25. Growth for the full financial year was just 4.2 per cent, the weakest since 2009.

June quarter worries

But the fourth-quarter slowdown is nothing compared to the collapse in economic activity which looms. Economists expect unprecedented weaker growth in the first quarter of the current financial year to June that will reflect the full impact of the lockdown. Domestic ratings agency ICRA expects GDP to shrink by as much as 20 per cent in the June quarter from a year earlier. Crisil ratings agency sees growth contracting 25 per cent.

The coronavirus has slammed India when the country was already mired in a long-running downturn, the worst in a decade and some 40 per cent of India’s GDP is normally generated by Covid-19 flagged red zones across the country, economist note. Mumbai, New Delhi, Chennai and Ahmedabad account for one-half of the country’s coronavirus cases.

Even before imposition of the lockdown, activity was constrained by worry over the virus with the services sector, which accounts for over 50 per cent of GDP, among the hardest hit areas of the economy. Hotels, transport and trade grow by just 2.6 per cent in the quarter to March from the same year-earlier period as panicked consumers shunned travel. Manufacturing slid by 1.4 per cent year-on-year, reflecting a crash in factory output.

For the full 2020-21 financial year, Covid-19 is expected to whack India with ratings agency S&P forecasting a record 5 per cent decline in full-year growth. Goldman Sachs also expects a 5 per cent GDP fall. Even with a relaxation of the lockdown, “a rapid recovery in sectors that require social interaction such as retail or recreation seems unlikely as long as the virus threat exists,” noted Capital Economics’ Shah.

Farm sector hope

The lone bright spot in Friday’s fourth-quarter growth figures was agriculture which expanded 5.9 per cent from the same-year earlier period. Weather forecasts for a normal monsoon have buoyed hopes that the farm sector will provide income to the millions of desperately poor migrants who returned to their villages after the start of the lockdown and help buoy the overall economy. But there are worries that the returning migrants will stoke Covid-19 infections in the India’s hinterland, fuelling economic misery in many areas.

Modi has announced a Rs 20 lakh crore stimulus package which the cash-strapped government has said represents 10 per cent of GDP to put India back on the growth path. But the measures have been panned by critics as failing to provide sufficient impetus to kickstart the economy.

Credit Suisse says actual fiscal spending under the stimulus plan that the government will carry out represents Rs 2 lakh crore or just 1 per cent of GDP. “India’s response to the COVID-19 crisis lacks major or innovative near-term fiscal support,” said Jitendra Gohil, analyst at Credit Suisse Wealth Management,