New Delhi: Just when the government had piped up about green shoots being visible in the economy, the Novel Coronavirus (COVID-19) may have spoiled the party.
In the second advance estimates released this evening, India stuck to its earlier estimate of a 5% GDP growth for the current fiscal year despite the growing threat of COVID-19 disrupting global supply chains.
For one, the full impact of this deadly virus on the global economy is still not clear though no one is denying that it will pull down global growth. And second, the specific impact on India can be assessed only after a few more weeks as supply chain disruptions become clearer.
Analysts say the impact may not be felt or may be insignificant even in the current quarter, but would surely show up in the numbers for the new fiscal year.
RBI Governor Shaktikanta Das told CNBC-TV18 after the GDP numbers came in that the central bank would need some more time to assess the impact of COVID19. He said manufacturing, particularly in sectors like televisions and mobile handsets, was dependent on supplies from China.
On pharma, the governor said big companies could still sustain themselves since they usually stock up on supplies for a long term. “At the moment, we feel 5% (GDP growth rate for the full fiscal) is doable. Let’s see,” he said.
The assertion of India maintaining its 5% growth target comes just after repeated references by the government to an impending economic revival, with little proof, as it continues to avoid any mention of a slowdown.
India’s GDP growth numbers have been coming in at record lows, quarter after quarter, for several successive quarters. The 5% growth estimate means the economy will have grown at the slowest pace in 2019-20 since the year of the Lehman crisis in 2008-09.
The 5% estimate anyway shows the extent of the slowdown in the economy within just 12 months, since GDP growth had been measured at 6.8% in 2018-19.
Anyhow, this 5% growth estimate for FY20 is way below the government’s initial estimate at 7% and also beneath the RBI number which was 7.4% to begin with. The Central Bank subsequently lowered growth numbers to reach the 5% mark in December last year.
And other set of numbers coming in this evening show GDP at constant (2011-12) prices in Q3FY20 (October-December 2019) was estimated at Rs 36.65 lakh crore against Rs 35.00 lakh crore in the same quarter last fiscal, showing a growth of 4.7%. This is more than the 4.5% growth number during the immediate previous quarter (July-September) as per the earlier data.
However, since the government released the second advance estimates this evening and also revised the data for the entire fiscal year upwards, the Q3FY20 GDP growth number is now a slowdown compared to Q2FY20.
According to the bumped-up figures for Q1 and Q2, the GDP growth was 5.6% and 5.1% respectively so that the growth number of 4.7% for Q3 can definitely now be called a slowdown.
While the bumping up of the growth rates for the past two quarters changes the perception that the third quarter was one of turnaround in India’s economic fortunes, it also means that the onus of keeping the sanctity of the 5% GDP growth rate number for the full fiscal year 2019-20 will now not really be on Q4. A GDP growth of even 4.6% in the January-March quarter will help maintain the 5% full-year target.
DK Srivastava, Chief Policy Advisor at EY India said the “implied 4QFY20 real GDP growth is at 4.7%, indicating that the current slowdown is likely to continue at least for one more quarter.” He also pointed out that the Q3 growth number at 4.7% is a significant contraction from the previous peak of 9.4% in the first quarter of 2016-17.
So what is the likely impact of COVID-19 on Indian economy? Analysis by a brokerage firm earlier this month showed that India’s top imports — mineral fuels and gems and jewellery (collectively accounting for ~46% or close to half of total imports) — are relatively insulated from this public health crisis in China.
Only about a fourth of the import basket is likely to be affected modestly, including imports of iron and steel, inorganic chemicals etc.
However, five import items depend heavily on China — electrical machinery, machinery and mechanical appliances, organic chemicals, plastics and optical and surgical instruments. These five items collectively account for ~28% of India’s import basket. Consequently, Indian industries in construction, transport, chemicals and machinery manufacturing could be worst-affected.
Meanwhile, analysts at HDFC Securities said the low rate of GDP expansion seen in Q3 was mainly due to weak manufacturing, falling exports and weak consumer demand, adding that slowdown may have bottomed out.
“The data suggests to us that the slowdown in the Indian economy has bottomed out and measures taken by the government in the recent Budget to improve capacity to spend in rural sector, infrastructure creation and inviting foreign investments will boost growth going ahead,” one of them said.
But Kotak Mahindra Bank senior economist Upasna Bhardwaj remained cautious on data ahead “as the global supply chain disruptions and weakening demand amidst spread of the epidemic could pose downside risk to India’s growth.”
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