Recession looms in India as consumption slumps amid virus lockdown

India's economy is likely to contract in the first two quarters of 2020, Goldman Sachs says

A deserted railways station entrance - India is set to slip into recession as consumption takes a hit during the nation wide 21-day lockdown. (AP Photo

India’s economy will likely contract in the first two quarters of the year as consumption plunges during a three-week lockdown to contain the coronavirus outbreak, according to Goldman Sachs.

Gross domestic product is forecast to shrink an annualised 1.4 per cent on a quarter-on-quarter basis in the first three months of the year and 3.8 per cent in the second quarter, Goldman economists Prachi Mishra and Andrew Tilton wrote in a report.

That will bring down growth in the fiscal year through March 2021 to 1.6 per cent, down from a previous estimate of 3.3 per cent, they said.

The pandemic has brought “an unprecedented sudden stop” to activity in India, where consumption makes up 60 per cent of the economy, the economists said.

Goldman expects a strong sequential recovery in the second half of the fiscal year based on a staggered removal of the ongoing nationwide lockdown and further monetary and fiscal support.

Prime Minister Narendra Modi’s government has so far provided virus-relief stimulus of only 0.8 per cent of the country's gross domestic product, while the central bank has cut interest rates by 75 basis points and has injected cash worth 3.2 per cent of GDP since February.

“The global Covid-19 crisis – or more precisely, the response to that crisis – represents a physical [as opposed to purely financial] constraint on economic activity that is unprecedented in postwar history,” the economists wrote.