Oxford Economics revises downwards its India growth forecast; pegs at average 4.5% for 2020-25

Context: In a research note, it said India’s post-COVID-19 scars could be among the worst in the world.

• Global forecasting firm Oxford Economics revised downwards its India growth forecast over the medium term to an average 4.5% over 2020-25, from its pre-pandemic projection of 6.5%.
• An adequate and well-designed fiscal stimulus would halve this impact by limiting deterioration in pre-COVID-19 headwinds.
• Indian government has announced various schemes and reforms this year, with an eye on the medium-to-long-term growth. “However, its policy implementation track record is mixed and is likely to have been weakened further by recent social and institutional developments that detract from its capacity to focus on economic policy-making.
• Even after the pandemic is contained, India’s economy will have to deal with stressed corporate balance sheets, elevated non-performing assets (NPAs) of banks, the fallout in non-bank financial companies (NBFCs), and labour market weakness.
• Despite having one of the most stringent lockdowns globally, India’s direct fiscal response to COVID-19 so far amounts to just 2.5% of GDP, with the lion’s share of the USD 230-billion fiscal package earmarked for liquidity and financing support schemes
• It forecast that the central government’s fiscal deficit will widen to 7% of GDP (gross domestic product) in 2020-21 from 4.7% in 2019-20, it’s unlikely to deliver a meaningful boost to growth because it’s not the result of a surge in spending.
• Oxford Economics expects private investment to continue to be held back by both macroeconomic and financial factors.
• On the Production Linked Incentive (PLI) scheme, the scheme is an important fiscal incentive that could impart a significant boost to manufacturing and investment in principle.
• Citizenship (Amendment) Act, 2019, sparked protests, unexpected departure of a second RBI governor in 2018 alongside other senior technocrats from different government offices raised questions about the independence of key institutions, such as the Central bank and the nodal statistical agency.
• Meanwhile, Moody’s Investors Service upped India’s growth forecast to (-) 10.6% for the current fiscal, from its earlier estimate of (-) 11.5%.

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