Goldman Sachs lowers India economic growth forecast to 11.1 per cent for FY21

| May 04, 2021 | Updated 3:30 pm

Goldman Sachs lowers India economic growth forecast to 11.1 per cent for FY21 Representational Image (Source: PTI)

New Delhi: While more states join the list of enforcing lockdowns, curfews, and other restrictions, American multinational investment bank Goldman Sachs revised and lowered its estimate for India’s economic growth to 11.1 per cent for this financial year 2021-22.

Following a similar strategy like that of 2020, the Indian government has imposed many restrictions but has left states to take a call on imposition of lockdown. This has led many political leaders and medical experts to demand a nation-wide lockdown to stem the spread of Coronavirus disease in the country.

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“The intensity of the lockdown remains lower than last year,” Goldman Sachs said in a report. “Still, the impact of tighter containment policy is clearly visible in higher frequency mobility data across key India cities.”

With tightening containment policy across the states, high-frequency data — particularly on the services side — has taken a hit. The manufacturing side — as indicated by high-frequency data on electricity consumption, and the stable April manufacturing PMI — has been more resilient.

Labour market indicators suggest that the daily unemployment rate has ticked up moderately in recent weeks, but the employment impact so far is much more contained than in April-June last year.

“Overall, most indicators still suggest that the impact has been less severe than it was in Q2 (April-June) last year,” Goldman Sachs said.

While the lockdown impact is much less severe than last year, the recent declines in services indicators including e-way bills, mobility, rail freight and cargo traffic has led to trimming GDP estimates.

“While activity is likely to rebound back quite sharply from Q3 (July-September) onwards — assuming restrictions can ease somewhat over that timeframe — the net result is to lower our FY22 real GDP growth forecast to 11.1 per cent (from 11.7 per cent previously), and our 2021 calendar year growth forecast to 9.7 per cent (from 10.5 per cent),” it said.

The report noted that India’s GDP growth had been on the decline even before the pandemic struck earlier last year. From a growth rate of 8.3 per cent in FY17, the GDP expansion had dipped to 6.8 per cent and 6.5 per cent in the following two years and to 4 per cent in 2019-20.

In the COVID-ravaged 2020-21 fiscal (April 2020 to March 2021), the economy is projected to have contracted by up to 8 per cent.

The Reserve Bank of India in its latest projections expects FY22 GDP growth at 10.5 per cent, while International Monetary Fund has put it at 12.5 per cent. The World Bank sees India grow at 10.1 per cent in 2021-22.

The downward forecasts are led by a rapid rise in new confirmed cases, which rose up sharply from 2 lakh a day two weeks ago, to 4 lakhs. While active cases increased to 34 lakh from 15 lakh within two weeks. On the other hand vaccination pace has fallen to 23 lakh per day compared to 33 lakh a day two weeks ago. The financial services company headquartered in New York City, expects vaccinations’ pace to improve after US  loosened restrictions for vaccine raw material exports to India. “Given these changes our healthcare analysts expect vaccine supply to improve significantly in the 2nd half of 2021,” it said. “With increased vaccine supply and a larger eligible population pool, we now expect the country to be able to vaccinate two-thirds of its entire population by Q1-2022 from Q2-2022 previously.”

(with inputs from PTI)