Oxford Study Claims India’s Economy To Be Worst Affected, Sharp Comeback Expected

GDP The Indian Wire


Oxford Economics claims that India would struggle to take itself out of the grasp of the pandemic and predict that the country would be worst-affected among the world’s major economies even after the pandemic wanes, with output 12 percent below pre-virus levels through the middle of the decade.

Priyanka Kishore, head of economics for South Asia and South-East Asia wrote in her report that the balance sheet stress that had been building before the coronavirus outbreak will worsen in the coming months. According to her projection potential growth for India at 4.5 percent over the next five years, lower than 6.5 percent before the virus.

She said, “It’s likely that headwinds already hampering growth prior to 2020 — such as stressed corporate balance sheets, elevated non-performing assets of banks, the fallout in non-bank financial companies, and labor market weakness — will worsen. The resulting long-term scars, probably among the worst globally, would push India’s trend growth substantially lower from pre-Covid levels.”

Although the contraction, the government still believes that they can achieve the feat of $ 5 trillion economies by 2025 from $ 2.8 trillion. The government has come up with a number of measures to support growth however they have fallen well short of expectations to boost demand. This has transferred the pressure on the central bank. Reserve Bank of India in a report last week said that the Indian economy has gone into a technical recession.

According to HSBC Holdings Plc India’s potential growth could drop to 5 percent in the post-pandemic world from 6 percent on the eve of the outbreak and more than 7 percent before the global financial crisis.

Priyanka Kishore also said, “All supply-side factors feel the effect, with only human capital’s contribution unchanged from the pre-virus baseline. Capital accumulation takes the biggest hit because we expect balance-sheet stresses to worsen following the crisis, lengthening the investment recovery cycle.”

Barclays predicts the Indian economy will return to normal faster than expected:

From an earlier prediction of 7 percent, Barclays lifted its fiscal 2022 growth forecast for the Indian economy to 8.5 percent. They also added that they expect the world’s second most populated country will return to normal faster than expected from the COViD-19 pandemic as the curve starts to flatten.

Since mid-September, the number of daily confirmed cases has started to fall. The country is now nearing 9 million cases of a novel coronavirus, which is only second to that of the United States of America.

Barclays, in a note, said, “The prospect of an effective vaccine in the near future and high seroprevalence of antibodies across the population support the case for a more durable economic recovery.”

As the lockdown got lifted from the country, the Indian economy is starting to come back to life. During the festive season, motorcycle company Hero and jewelry maker Titan reported strong sales. However, Barclays has forecasted a further drop in the country’s GDP from a negative 6 percent to a negative 6.4 percent. The brokerage predicts that the company’s GDP will fall by 8.5 percent in the second quarter of the current fiscal year, almost in line with the Indian central bank’s forecast. Although, unlike the central bank’s projection, Barclays expects the Indian economy to make a comeback in the third quarter of the current financial year, a quarter earlier than the RBI’s projection.