Goldman Sachs has revised its forecasts for the effect that the Covid-19 crisis will have on the Indian economy.
The leading Wall Street investment bank now anticipates that India's gross domestic product (GDP) will shrink by an annualised rate of 45 per cent in the second quarter, having previously predicted a 20 per cent contraction.
The note by Goldman’s Prachi Mishra and Andrew Tilton was not entirely without causes for hope. The economists also revised their forecast for a third quarter recovery up to 20 per cent and maintained their projections for the two subsequent periods, 14 and 6.5 per cent.
Nonetheless, the bank admitted that should its projections come true, then India will suffer a recession deeper than it has ever experienced, with real GDP falling 5 per cent in the 2021 fiscal year.
India has been in a state of nationwide lockdown since late March and for a country of over 1.3 billion people has only suffered around 3,000 deaths from little over 96,000 confirmed cases. The Indian government has extended the lockdown until the end of May, while allowing certain sectors of the economy to open up slightly.
Mishra and Tilton stated: “These reforms are more medium-term in nature, and we therefore do not expect these to have an immediate impact on reviving growth. We will continue to monitor their implementation to gauge their effect on the medium-term outlook.”
In the short-term, Finance Minister Nirmala Sitharaman has announced an economic stimulus package of $265bn (£211bn, €245bn), equivalent to 10 per cent of Indian GDP.
While the government of Narendra Modi will balk at Goldman's dire second quarter forecast, it will hope the bank’s projections of a rapid recovery are well founded. Even before the current crisis, investor sentiment towards the emerging world power was cooling, with the prime minister unable to realise the growth he had promised when up for election.