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DBS Bank slashes India’s FY21 GDP forecast to 1% from 1.5%; another Rs 1.5-3 lakh-cr relief package required

The Singapore based DBS bank has trimmed the India’s Gross Domestic Product (GDP) forecast for FY 2020-2021 to 1% from 1.5% projected on April 9, 2020 due to two months lockdown.DBS Bank slashes India’s FY21 GDPAssumptions taken during the forecast:

  • Ending of Lockdown in the June quarter
  • Reopening of all sectors by third quarter (October-December)
  • Catch-up production, normal monsoon, fiscal support measures of at least 3% of GDP and direct lending support by the authorities.

Key Points:

-The general government (the Centre and States) deficit is likely to rise to 10-10.5% of GDP in FY21 vs around 6% of GDP earlier.

-Public debt level to rise from 70% of GDP to 75-80%.

Measures to tackle the situation; another Rs 1.5-3 lakh-crore needed to reach poor

-Creation of a special purpose vehicle (SPV) to directly purchase corporate bonds (to arrest widening spreads vs government securities and temper volatility);

-Direct institutional (from the RBI or government) support to backstop credit facilities to quell contagion and systemic concerns, while supporting banks lower their credit aversion.

-Rs 1.7 lakh-crore (relief package for the poor to help them fight Covid-19) already outlined by the government, DBS Bank estimated that another Rs 1.5-3 lakh-crore needed to reach every poor.

About DBS:
Headquarters– Singapore
Former Name– Development Bank of Singapore (DBS)
Chief Executive Officer (CEO)– Piyush Gupta