BofA report counters 'green-shoots', forecasts contraction in GDP

Source :Sify
Author :Sify
Last Updated: Thu, Jul 9th, 2020, 23:23:26hrs

A Bank of America securities analysis finds that India's GDP could slip by 3 percent in 2020-21.  

BofA's forecast of a GDP contraction has been based on the assumption that India fully opens to business by August. Should the impact of the pandemic exist beyond August, a higher GDP contraction has been forecast. A 5 percent GDP contraction has been estimated should the crisis prolong.  

The PTI quoted BoFA's India economist Indranil Sen Gupta in its report as explaining that the estimate was among the more optimistic ones yet differed from others on the impact-likelihood. In the words of Gupta, the health emergency and its impact was one which no one could predict with certainty at present.

The BoFA analysis presents these 3 key forecasts:

1. RBI will monetise the fiscal deficit through purchase of government bonds of up to $95 billion through open market operations, and its revaluation reserves of $127 billion may also be used to recapitalise state-run banks.

2. Covid-19 may set Indian economy back by a year: GDP growth will come in at 9 percent in FY22 on the lower base, he said, adding that for two fiscal years (FY21 and 22), the growth will come at an average of 3 percent.

3. Lend like no tomorrow? Indian banks need over $7 billion in recapitalisation support, which will make sure that they continue to lend, he said, adding that bankers should desist from shying away from lending due to concerns of NPAs in future.

Sen Gupta also highlighted India's biggest strength - the over $500 billion in forex reserves accumulated by the RBI over a few months. He added that this kitty has helped India out of being bracketed with other emerging economies by the markets at present. Also, he shares the advise of turning to the RBI's revaluation reserves for bank recapitalisation as a fiscal discipline measure.

Post July, state policies have been amenable although several cities have witnessed work from home protocols. Maharashtra, the state with the highest cases of Covid-19 allowed hotels to open only a week ago even as schools and avenues of mass-gatherings remained shut.  

The Prime Minister on Thursday remarked during a VC address that India was already seeing "green-shoots of recovery".

Two days ago, Amitabh Kant, the CEO of Niti Aayog, the government's think-tank, explained "I am a great believer that India will bounce back. We are already seeing green shoots in the economy. We are seeing that key sectors like FMCG (fast-moving consumer goods) have already come back."

"hopeful that we will bounce back and bounce back with a vengeance," he was quoted as saying in a Tribune story during his address at FICCI FRAMES 2020.