Q. India’s GDP growth rate has dipped to its lowest in recent times, do you think restricting our global trade due to COVID-19, will it be helpful to our country’s economy , Justify your opinion.
Answers
Answer:
With several countries and regions locked down, will there be a redrawing of geographical boundaries?
Biswajit Dhar: I think we are going towards a new normal now. Much of what we saw in terms of global integration of trade and finance would suffer in the short run. If you recall, when the world was hit by economic recession in 2008, trade dipped by almost 10% in 2009 when there was a 3% decline in global GDP. That’s roughly the relation between trade and growth. When there’s a boom, trade grows much faster than GDP. The World Trade Organization (WTO) has now estimated that in a worst-case scenario, global trade could dip as much as 32%, indicating the kind of dislocation they expect in large economies. It’s going to be a very different ball game — the first thing that will happen is countries will try to build themselves up. In India, for instance, we can see the disruption that is taking place — almost 50% of our trade is directly linked with the micro, small and medium enterprises (MSMEs) sector as even large players have sub-contracted to the smaller producers. So it is anyone’s guess what the impact is going to be on trade because of the disruption in production. Going forward, most economies, with the exception of China, are going to see a very different kind of dynamic as they will try to build up from where they would be in a few months’ time and then think in terms of how to integrate themselves again with other countries. My expectation is that this will be a whole new normal that we haven’t seen — after the first round of global integration that we saw in the first decade of the 20th century.
hope it helps you
thanku
Answer:
balance sheets throughout the economy.
S&P Global Ratings on Thursday said the Indian economy will shrink by 5 per cent in the current fiscal
"The COVID-19 outbreak in India and two months of lockdown -- longer in some areas -- have led to a sudden stop in the economy. That means growth will contract sharply this fiscal year (April 2020 to March 2021)," it said. "Economic activity will face ongoing disruption over the next year as the country transitions to a post-COVID-19 world."
Forecasting a 5 per cent contraction in 2020-21 (versus 1.8 per cent growth forecast it made in April), S&P said growth is expected to pick up to 8.5 per cent in the following fiscal (up from the previous forecast of 7.5 per cent). The GDP is projected to expand by 6.5 per cent in FY23 and 6.6 per cent FY24.
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Earlier this week, Fitch Ratings and Crisil, too, projected a 5 per cent contraction for the Indian economy.
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While Fitch Ratings had stated that India has had a very stringent lockdown policy that has lasted a lot longer than initially expected and incoming economic activity data have been spectacularly weak, Crisil had said the country's fourth recession since Independence, first since liberalisation, and perhaps the worst to date, is here.
On Thursday, Fitch Solutions (which is separate from Fitch Ratings) forecast real GDP to contract by 4.5 per cent in FY2020-21 saying "high unemployment will depress consumer spending, while widespread economic uncertainties will curb investment in the private sector.
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Moody's Investors Service on May 8, forecast a 'zero' growth rate for India in FY21.
In the past 69 years, India has seen a recession only thrice – as per available data – in fiscal year 1958, 1966 and 1980. A monsoon shock that hit agriculture, then a sizeable part of the economy, was the reason on all three occasions.
This time around agriculture is not the reason but a dent to industrial and economic activity caused by lockdown, which was first imposed on March 25. The lockdown has been extended thrice till May 31 with some easing of restrictions.
S&P Global Ratings expects varying degrees of containment measures and economic resumption across India during this transition.
"COVID-19 has not yet been contained in India. New cases have been averaging more than 6,000 a day over the past week as authorities begin easing stringent lockdown restrictions gradually to prevent economic costs from blowing out further. We currently assume that the outbreak peaks by the third quarter," it said.
India has grouped geographical zones into red, orange, or green categories based on the number of cases. Areas currently classified as red zones are also economically significant, and the authorities could extend mobility restrictions.
"We believe economic activity in these places will take longer to normalize. This will have knock-on impacts on countrywide supply chains, which will slow the overall recovery," it said.
The rating agency said high-frequency data for April showed major economic costs for India - purchasing managers index (PMI) for the services sector was 5.4, on a scale where anything below 50 indicates a contraction of business activity from the previous month for the sector.
Also, service sectors, which account for high shares of employment, have been severely affected, thus leading to large-scale job losses across the country. Workers have been geographically displaced as migrant workers travelled back home before the lockdown, and this will take time to unwind as lockdown measures are lifted.
"We expect that employment will remain depressed over the transition period," it said.
S&P said India has limited room to maneuver on policy support. The Reserve Bank of India has cut policy rates by 115 basis points but banks have been unwilling to extend credit. Small and mid-size enterprises continue to face restricted access to credit markets despite some policy measures aimed at easing financing for the sector.
"The government's stimulus package, with a headline amount of 10 per cent of GDP, has about 1.2 per cent of direct stimulus measures, which is low relative to countries with similar economic impacts from the pandemic. The remaining 8.8 per cent of the package includes liquidity support measures and credit guarantees that will not directly support growth," it said.
The rating agency said the big hit to growth will mean a large, permanent economic loss and a deterioration in balance sheets throughout the economy.