New Delhi:
India's already-slowing economy weakened to at least an eight-year low this quarter and will slow even more sharply in the next six months due to the global coronavirus pandemic, a Reuters poll found.
With the virus spreading rapidly, Prime Minister Narendra Modi announced a three-week nationwide lockdown on Tuesday which will have a huge detrimental impact on businesses.
India's informal sector, the backbone of the economy, will be hardest hit as economic activity comes to a standstill.
"Just as everywhere else in the world, the Indian economy is bracing for the fallout (from) this unprecedented event. We expect the lockdown to dramatically reduce GDP in … subsequent quarters, while there will be prolonged economic gloom throughout the rest of the year," said Prakash Sakpal, Asia economist at ING.
According to the Reuters poll of economists taken March 25-26, India's economy will expand just 4.0% annually on a year ago in the quarter that ends on March 31, the weakest since comparable records began in early 2012.
That is also slower than the 4.7% recorded in the last three months of 2019.
The economy was forecast to grow 2.0% next quarter and 3.3% in the July-September quarter.
"We already changed our baseline scenario to our pandemic scenario recently. However, things are moving very fast and our pandemic scenario seems to be already too mild," said Hugo Erken, head of international economics at Rabobank.
Under a worst-case scenario, the economy was forecast to grow by a median 0.5% in April-June, with one economist predicting a 20% contraction. Still, only about one-quarter of those who answered this additional "worst-case" question said the economy would shrink.
The latest poll findings on India growth line up with expectations elsewhere around the globe, where economists have been slashing their outlook repeatedly and their worst case scenarios are fast turning into central forecasts.
For the current fiscal year, economic growth was forecast to average 4.7% and then slow sharply next fiscal year to 3.6% – its most lacklustre rate since the global financial crisis.
While that already shows a grim outlook and how quickly the coronavirus-led economic hit is becoming clear, economists said growth would be much weaker than currently predicted if the situation worsens.
"The risks to our new forecasts are still firmly on the downside. If the latest measures fail to contain the virus, or if the monetary and fiscal response proves too timid, the economy could even contract this year," noted Shilan Shah, senior India economist at Capital Economics.