The Economy Observer
11 June 2020
2QCY20 – India’s Quarterly Economic Outlook
A glimpse at the country’s economic data amid COVID-19
In the wake of the Coronavirus (COVID-19) pandemic, the world has turned topsy-turvy since early-2020. Not
surprisingly then, our FY21 economic forecasts have also undergone dramatic revisions. We now expect the Indian
economy to contract ~4.7%/3.5% YoY in real/nominal terms this year, marking their first contraction in 41/65 years.
Notwithstanding the massive contraction in economic activity, we believe that retail inflation could remain at ~5% in
FY21 vis-à-vis 4.8% last year (primarily led by food prices). However, current account balance could move from a deficit
of ~0.9% in FY20 to a surplus of ~0.4% of GDP this year. The
is expected to range between 74-75 against the USD
and average ~74.8 in FY21 v/s 70.9 last year.
economic activity index (EAI)
for India suggests ~30% YoY contraction in Apr’20, on account of the national
lockdown. With economic activity gradually opening up from May’20, we believe that real GDP could contract 15-20%
YoY in 1QFY21. It also implies an output loss of about ~INR24t (or ~12% of FY20 GDP) in FY21.
Finally, although India’s fiscal stimulus is the lowest compared to 20 other major nations, the fiscal deficit of the
central government could come in at 7.0-7.5% of GDP this year, following the 4.6% last year and marking the highest
deficit in three decades. Including states, the
combined fiscal deficit
is expected at 11-12% of GDP, the highest in at
least the past five decades since availability of data.
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Everything has changed since
grew 3.1% YoY in
marking the slowest growth in 11 years. Not
only did the government revise growth estimates in the first three quarters of FY20
downwards, but also the nominal GDP growth at 7.2% was the slowest in 48 years.
Due to the COVID-19 crisis, we believe India’s real/nominal GDP could contract
~4.7%/3.5% this year, marking their first contraction in 41/65 years.
With the CPI basket heavily influenced by food items, the headline
inflation is expected to average ~5% in FY21, slightly higher than 4.8% last year. The
core inflation, however, could ease from 4% to 2.3% this year.
Foreign trade and exchange rate:
With weak global and domestic economic activity
and the crash in crude oil prices, we believe the net impact on India’s external
account would be positive. Consequently, we expect India to post its first current
account surplus in 18 years in FY21. With foreign capital inflows, India’s foreign
exchange reserves could witness further build-up. Accordingly, we expect the INR to
remain stable at 74-75 against the USD and average 74.8 in FY21.
1QFY21F 2QFY21F 3QFY21F 4QFY21F
# Estimates for FY20/F = Forecasts
India’s real/nominal GDP
could contract ~4.7%/3.5%
this year, marking their first
contraction in 41/65 years.
Forecasts of key macroeconomic variables for the Indian economy
Consumer price index (CPI)
Policy repo rate (year-end)
Current account balance
% of GDP
% of GDP
* For the central government only
– Research analyst
(Nikhil.Gupta@MotilalOswal.com); +91 22 3982 5405
– Research analyst
(Yaswi.Agrawal@motilaloswal.com); +91 22 7193 4196
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.