India's economy looks for aggressive stimulus

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Manufacturing activity has come to a halt as the biggest factories in the US, Europe and China are shut down since February following the coronavirus outbreak. In the services space, hundreds of thousands of workers across the globe have been furloughed or have lost their jobs as malls, hotels, restaurants and airlines remain closed. In the US, non-farm payrolls fell by 701,000—its worst in ten years—and unemployment rose to 4.4 percent.

This indicates that most economies are likely to see de-growth possibly till the first half of FY21 (April-September). The International Monetary Fund (IMF) in April forecast that the world will see its “worst downturn since the Great Depression” of the 1930s, with output set to shrink by 3 percent in 2020. There are 20,69,819 coronavirus cases and 137,193 deaths because of Covid-19 as of April 16, according to data from the Johns Hopkins University.

Even as parts of China have returned to work, a large section of the globe continues to face disruptions in manufacturing supply chains. The World Trade Organization has estimated that global trade will fall by 13-32 percent in 2020, worse than what was seen during the 2008 financial crisis. China is expected to see a modest low single-digit economic growth in 2020, but the IMF expects growth there to bounce back to 9.2 percent in 2021.

India’s growth forecasts look equally bleak for 2020 as the nationwide lockdown has been extended to May 3. “We believe the existing restrictions on movement are causing much more economic damage than anticipated,” says Rahul Bajoria, chief India economist at Barclays.

Barclays has revised India’s GDP to 0 percent for calendar year 2020 (from an earlier projected 2.5 percent) and a marginal rise of 0.8 percent for the fiscal ending March 2021. Fitch Ratings in April slashed India’s growth forecast for FY21 to a 30-year-low of 2 percent from 5.1 percent earlier. The lockdown in March saw India’s unemployment rate surge three-fold to 23 percent, as of April 5.

The government is set to reopen activity in some sectors such as MNREGA works, MSMEs, logistics and ecommerce firms, agriculture and food procession factories (located outside municipal corporations), and all central ministries and their departments. However, the lockdown notifications will continue for containment zones. With no sales and payment from clients delayed, SMEs are struggling to retain staff and labour apart from not having access to affordable finance.

The RBI has announced fresh measures to boost liquidity for small businesses and microfinance firms. But specific economic relief is yet to be announced by the government for sectors hardest hit such as export-oriented firms, hospitality, tourism and airlines. In view of the rising fiscal deficit, the government may not be in a position to come up with an aggressive stimulus. Mid-and-small companies in these sectors will hope that any relief is not too late.