Amidst the economic slowdown and continuous spread of coronavirus (COVID – 19 ), the OECD ( Organization for Economic Cooperation and Development ) has lowered its growth forecast for India in the next fiscal year (starting on April 1, 2020) to 5.1 %.with chances of improving to 5.6 % only after one year.
This is in contrast to its earlier projection in November 2019, in which the Indian economy was expected to grow at 6.2 %.
For the current financial year (ending on March 31, 2020), the OECD has kept the expected GDP growth rate at 4.9 %.
This is much lower than the central government’s projected estimate of 6 – 6.5 % growth number.
The reduction by OECD has been attributed majorly to issues arising due to the spread of the virus which has wreaked havoc in Indian as well as global stock markets over the last few days.
Another global agency, Moody’s, had last month lowered India’s GDP growth projection to 5.4 % from 6.6 % earlier and global growth projection to 2.4 %.
The OECD projection comes in the wake of a major expected slowdown in China and its overall impact on the financial system, the all-important travel and tourism sector, export markets and thus affecting the logistics space along with disruption in the supply chains.
The world is much more connected and inter-dependent and China assumes greater importance in the scheme of things today. It is a major economy as well as topmost manufacturer and exporter of goods.
Any impact on its economy is bound to have an adverse impact on global economies. Experts are of the opinion that it can cause unprecedented damage to the economic system, in case things go out of hand or if the situation takes too long to normalize.
The month of February also saw global manufacturing contraction to an almost 10 year low as international trade, import-export, and demand-supply took a major hit due to the coronavirus scare.
The governments world over are getting into action mode along with the Central Banks.
The Reserve Bank of Australia has become the first one amongst the developed economies to announce a rate cut.
The interest rates were cut by 25 basis points and now stand at a historic low of 0.5 %.
The Reserve Bank of India, in its February 6, 2020 announcement post the MPC meeting had projected the economy to grow at 6 % during the coming financial year. It had stated that high Inflation still remains a concern but is being monitored closely. The Central Bank said that an economic recovery is expected in the third quarter of FY 21.
India has been going through an economic slowdown, starting with the going down of erstwhile blue-chip lender IL & FS and its ripple effect on the NBFC (Non-Banking Finance Companies) and HFC (Housing Finance Companies) sectors. It resulted in serious liquidity crunch in the system and subsequent downgrades for and defaults by major infrastructure and financial companies.
However India so far has largely and fortunately remained insulated from the spread of the deadly coronavirus, with only two reported cases so far.
The economy is expected to rebound on any positive update about the containment of the spread of COVID -19.