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India’s economy is predicted to -7.3% for FY 21 due to 2nd wave of COVID-19- OECD’s June 2020 EO

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contract by as much as 7In accordance with the Economic Outlook (EO), June 2020 by Organisation for Economic Co-operation and Development (OECD), India’s Gross Domestic Product (GDP) for FY 2020-2021 predicted at -3.7% which can further decelerate to -7.3% in case of second Covid-19 outbreak, the lowest estimate for India’s growth so far, overtaking Bernstein’s projected 7% contraction for India in FY21.

  • It should be noted that EO, June 2020 has assumed an implementation of shutdowns in the December 2020 quarter (Q3), following another surge of the COVID-19 virus. This assumption is regarded as a double-hit scenario.
  • On the other hand, the single-hit scenario is the strict national lockdown (25 March – 19 April) followed by a very gradual opening in the following six weeks (20 April – 31 May) and targeted lockdowns in June, 2020 to control the infection rate.

Predictions with regard to Indian Economy:

-This recent FY21 prediction faced a sharp decline in comparison to the March 2020 interim EO, which had projected 5.1% growth for FY21.

-For FY21-22, a recovery to 7.9% in the “single-hit” scenario while an 8.1% rebound in the “double-hit” scenario.

Fiscal Deficit: The fiscal deficit of the government ranged between 8.2%-8.9% in FY21 reflecting collapsing tax revenue.

Risk Factor: The key risk for the growth of Indian economy is instability in  the financial market which is deteriorating the balance sheets of the government, corporates and banks resulting in low investment rates by 22% in FY 2020-21, low income up to the Q3 of FY 2021-22, and sluggish growth.

Predictions with regards to Global Economy:

Single-hit-scenario: On the global front, the report has projected a sharp 6% contraction in FY21 followed by a strong 5.2% rebound in FY21-22.

Double-hit scenario: A steep contraction of 7.6% is expected for FY21 and 2.8% rebound in FY22.

Unemployment rate– OECD unemployment climbs to 9.2% from 5.4% in 2019.

– Five years of income growth is lost by 2021.

 Efforts to be taken by India for revival:

-India’s policy, Cuts in policy rates and other measures to promote liquidity provision have been timely. It is required to make personal income tax schedules more compatible with other emerging market economies and abolishing tax expenditures which would raise personal income tax revenue by at least 50%.

-India’s focus should be to mitigate the human and sanitary crisis by ramping up health care resources and providing sufficient cash to those in need.

-After this, the priority is to reboot the economy and job creation focusing on manufacturing. Also an improvement in manufacturing input services like electricity, transport, logistic and financial services required.

Overall, test, track, trace and isolate and distancing strategies to limit virus outbreaks is necessary with global cooperation to develop and distribute a vaccine and treatments.

Click Here for official EO, June 2020
Click Here for Official EO, June 2020-India

About OECD:

Secretary-General– Jose Angel Gurria Trevino
Chief economist– Laurence Boon
Headquarters– Paris, France
Member countries– 37 (not India)

  • India is the Key Partner of OECD.
  • The OECD Economic Outlook is the OECD’s twice-yearly analysis of the major economic trends and prospects for the next two years.