No early respite for India’s economy

On Friday the Indian economy was rocked by two numbers which dashed any hope of an early recovery. First, India’s gross domestic product (GDP) grew by just 4.7% for the third quarter of FY20, and secondly, the Sensex fell by 1, 448 points in tandem with global markets. The loss to the Indian stock markets was Rs 5.5 lakh crore on Friday, to the world markets more than $5 trillion over the past six days. Even the rupee tumbled to 72.18 to a dollar.

A combination of slowing economic growth, fears of a recession in the U.S. and the Eurozone, the rising number of coronavirus cases or Covid-19 took a heavy toll on auto, electronics and pharma stocks, which have strong links to China’s supply chains.

Fears of a global recession are forcing investors to seek safety in U.S. treasuries and gold, which is seeing record price levels. There are real grounds for such fears, as Mark Zandi, chief economist at Moody’s Analytics, points out: “A global recession is likely if Covid-19 becomes pandemic and the odds are uncomfortably high.” Zandi has raised the odds of Covid-19 becoming a pandemic from 20% to 40%.

GDP growth in the October-December quarter is just marginally higher than 4.5% in the July-September quarter. In the June quarter it was 5%. The slight increase is due to the growth in the agricultural sector, 3.5% compared with 2% in the last quarter, because of delayed but good rains.

Manufacturing continued to be a drag on the economy as has been falling exports and weak consumer demand. The manufacturing sector contracted by 0.2%, compared with 5.2% expansion in the same quarter a year earlier; in the preceding quarter the figure was -0.4%. Similarly, electricity consumption contracted by 0.7% compared to a 3.9% expansion in Q2 FY20.

The services sector, which accounts for nearly 60% of the economy, grew 7.4%, slightly higher than 7.3% in the previous quarter and at the same level in the same quarter last year. The country’s fiscal deficit during the first 10 months of FY20 had touched Rs 9.85 lakh crore or 128.5% of the government’s revised target.