April 18, 2020|
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The Corona Virus (Cov-19) has brought the world to a near-standstill. Manufacturing and services have been severely impacted across the globe. Plants have been shut down and services have been brought to a near halt with only essential services functioning. Let’s review how India compares with the rest of the world in terms of GDP growth, which is an indicator of economic growth.
China, the country from which the Covid-19 emanated, is currently struggling with reviving its economy and external trade. The above-stated three blocks have strong trade ties with China in respect of both imports and exports, and, in turn, have been impacted with the near de-growth that China is facing. Standard & Poor’s, a global rating agency, has confirmed that a recession across Asia-Pacific is a certainty due to disruptions in China. The Economist Intelligence Unit (EIU) has predicted the eurozone to be hardest hit posting a full-year recession of 5.9%.
India is currently going through a 21-day lockdown to contain the spread of Covid-19, which is expected to end mid-April. To cushion the economy from the shut down of manufacturing and services (except essentials), the finance minister, Nirmal Sitharaman announced Rs.1.7 lakh crore package. At the same time, RBI announced a number of measures to improve liquidity in the system to help banks revive lending.
While it’s true that the impact of Covid-19 will reduce India’s GDP growth, the country is in an advantageous position compared to the rest of the world, which is in a recession. Moody’s has reduced India’s GDP growth rate for calendar year 2020 from 5% to 2.5%. While the year 2020 is expected to be a lost year due to Covid-19, Crisil and Standard & Poor’s have predicted India’s GDP growth rate at 5.2% for financial year 2021.
A more positive prediction has been made by the EIU, which stated that India will be the fastest growing economy among the G20 counties. In fact, it has predicted that India will be one among the only three countries (China and Indonesia being the other two) to escape recession. The EIU expects India to be far ahead of China, whose GDP growth rate is expected to contract from 6.1% in 2019 to just 1% in 2020.
A point to note in India’s case is that the Covid-19 effect will not be similar across all industry groups. While sectors such as auto, hospitality, airlines, consumer (discretionary), etc. are expected to see a significant downward valuation, essentials such as consumer staples (essentials), pharma, etc. will fall the least.
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