India predicts GDP 7.7% contraction, likely to prompt steps to boost growth

FILE PHOTO: A worker pushes a wheelbarrow to collect cement at a construction site of a residential building in Mumbai, India, August 31, 2018. REUTERS/Francis Mascarenhas

NEW DELHI (Reuters) – India’s economy is expected to contract 7.7% in the current financial year ending in March, the worst performance in four decades, which is likely to prompt the finance minister to make a push for growth in the budget next month.

The estimate released on Thursday by the Central Statistics Office is broadly in line with the forecasts of private economists, who envisage a contraction of 7-9.5% for the 2020/21 fiscal year, and the central bank, which has revised its estimate to 7.5%.

The government’s annual budget for next financial year, due to be presented on Feb. 1, is expected to increase spending on new roads, ports and provide incentives for manufacturers, to propel the economy out of its slump.

The economy contracted by a record 23.9% in the April-June quarter following a national lockdown to prevent the spread of the coronavirus. The contraction was reduced to 7.5% in the September quarter.

The government now expects a marginal positive economic growth in the December quarter as most coronavirus restrictions have been lifted, helping consumer demand and investments. The economy grew 4.2% in the fiscal year 2019/2020.

The government expects that the approval of two COVID-19 vaccines will spur consumer confidence as vaccinations are set to begin next week.

With more than 10 million recorded cases of the coronavirus, India is the second worst hit country after United States. It has recorded just over 150,000 deaths.

Nominal GDP growth is expected to contract 4.2% in the current financial year, the government statement said, and will be used by the finance minister to revise fiscal deficit numbers for the current financial year.

India’s fiscal deficit for year ending in March is likely to be over 7% of gross domestic product, three sources have told Reuters, as revenue collections suffered during the lockdown and coronavirus restrictions.

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