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India will be worst-hit among the world's major economies even after the COVID pandemic disappears, with output 12% below pre-COVID levels through the middle of the decade, a report by Oxford Economics has revealed.
"Balance sheet stress that had been building before the coronavirus outbreak will probably worsen," Priyanka Kishore, head of economics for South Asia and South-East Asia, wrote in the report. She also projects a potential growth for India at 4.5% in the coming five years, lower than 6.5% before the pandemic.
"It's likely that headwinds already hampering growth prior to 2020 -- such as stressed corporate balance sheets, elevated non-performing assets of banks, the fallout in non-bank financial companies, and labour market weakness -- will worsen," the economist said. "The resulting long-term scars, probably among the worst globally, would push India's trend growth substantially lower from pre-COVID levels."
A nowcast report published by the Reserve Bank of India last week predicted that India's economy has entered a historic technical recession.
The International Monetary Fund in its report also predicts GDP will contract 10.3% in the year to March 2021 as the sudden nationwide lockdown stopped all economic activities. While a sharp rebound is expected as economic activity resumes, there are lingering wounds on the economy that are likely to have far-reaching impacts.
"India's potential growth could drop to 5% in the post-pandemic world from 6% on the eve of the outbreak and more than 7% before the global financial crisis," HSBC Holdings Plc said.
"All supply-side factors feel the effect, with only human capital's contribution unchanged from the pre-virus baseline," Kishore said. "Capital accumulation takes the biggest hit because we expect balance-sheet stresses to worsen following the crisis, lengthening the investment recovery cycle."
Meanwhile, according to top global agencies, India's economy is likely to recover quicker than predicted after the country's GDP contracted almost 24 per cent in the first quarter of 2020-21. Global rating agency Moody's Investors Services and brokerage firm Barclays on Thursday, November 19, lifted India's growth estimates, following a sharp recovery in the country during the ongoing festive season.
While Moody's had earlier predicted India's annual growth forecast at -11.5 per cent, it has revised it to (-) 10.6 per cent. The revision comes after the government's latest Atmanirbhar Bharat 3.0 stimulus package amounting to Rs 2.65 lakh crore. Moody's praised the government's measures and said that they will help boost competitiveness in India's manufacturing sector and generate employment in the country.
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