9/18/2020 India's GDP to contract by 8.

6% in FY21, fiscal stimulus needed soon: UBS Securities - The Economic Times

News
English Edition | 18 September, 2020, 02:50 PM IST | E-Paper

India's GDP to contract by 8.6% in FY21, scal

stimulus needed soon: UBS Securities
Synopsis
It said the country's potential rate of growth has also come down to 5.75-6.25 per cent as per its estimate as against 7.1 per cent, driven by
factors including the weak government response to arrest the growth slide.

Agencies
Swiss brokerage UBS Securities said it forecasts a GDP contraction of 8.6 per
cent in FY21 as against its earlier prediction of 5.8 per cent, citing factors including
the “modest” government response to the crisis for its estimate.

It said the country's potential rate of growth has also come down to 5.75-6.25 per
cent as per its estimate as against 7.1 per cent, driven by factors including the weak
government response to arrest the growth slide.
The country is among the few worldover where
Some improvement is being observed in the high frequency data, but much of it is
the brokerage has downwardly reviewed its
growth estimate.
pent-up demand and economic recovery will be “gradual” after the September
quarter, its chief economist Tanvee Gupta Jain told reporters.

It can be noted that the country's gross domestic product (GDP) shrunk by nearly a fourth in the June quarter as the
COVID-19 pandemic fuelled lockdowns chilled all economic activity. The infections continued to increase, making India
the second most a ected country.

Jain said the modest recovery which we are seeing right now cannot be sustained because of the rising infections and
also income uncertainty, which is holding back people from consumption in the economy that relies 60 per cent on
consumption.

“We are a little bearish as against the consensus and feel that the GDP will contract by 8.6 per cent in FY21 before
growing by 10 per cent in FY22,” she said.

She also revised down the potential rate of growth in the economy, citing the permanent damage done by the pandemic
because of the problems on company balance sheets and the “modest policy response” to the crisis. She also warned that
debt sustainability may become a challenge going ahead.

The scal stimulus is of only 1.8 per cent and there is an urgent need for a second round of the same, she said.

“India needs a credible scal stimulus,” she said, adding that the response has to be coupled with reforms.

The government needs to spend on infrastructure development and construction activities, undertake more employment

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9/18/2020 India's GDP to contract by 8.6% in FY21, fiscal stimulus needed soon: UBS Securities - The Economic Times

generation act works in both the rural and urban areas and broaden the incentives for manufacturers shifting base to
India as part of the global supply chain realignment, she said.

The country is among the few worldover where the brokerage has downwardly reviewed its growth estimate, she said,
adding that in many other countries, it is an upward revision from the previous estimates given right after the pandemic
began.

There is a rise in savings in the country despite the absence of a corresponding rise in incomes, she said, pointing out that
these are “precautionary spendings” undertaken by cutting expenditure and may be temporary.

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