India's GDP To Shrink By 6% This Year: DBS Report

On Wednesday, Singaporean brokerage DBS, in its latest forecast said the yet to be stabilised infection curve and the COVID-19 caseload in economically key states could deepen the distress for the country leading to a 6 percent growth contraction in the financial year 2020-21.

In its earlier forecast, the brokerage had projected a minus 4.8 percent growth for the current fiscal.

"We temper growth forecasts to minus 6 percent for FY21 due to the prolonged sub-normal reopening as the country is yet to stabilize the infection curve and the pandemic is going to take a deeper economic bite," DBS economist Radhika Rao said in a note.

The yet to be stabilised infection curve reflects a deeper double-digit contraction in Q1 of FY21 and a shallower pickup in Q2 and a return to growth in Q3, she added.

"Our granular analysis shows that about 7 percent of the districts account for 70 percent of the total infection tally in economically key states like Maharashtra (14 percent of national GDP), Tamil Nadu (8.5 percent), Gujarat (8 percent), and Karnataka and Andhra contributing significantly to the national economic output," she said.

On top of this, localised lockdowns continue even today with Bihar and cities like Pune and Bengaluru still in lockdowns till July-end.

Domestic flights are also selectively restricted by some states and if more states go down this path, this may pose renewed supply chain disruptions as well as uncertainty for manufacturers, including automakers and electronics firms, warned the report.

On recovery, Rao said much depends on the extent to which rural demand and farm output, which is forecast to be at 2 percent in FY21, will act as counter-balancing buffer for a slump in non-farm output.

She also expects another round of fiscal support package/stimulus in September/October, when the economy is fully opened.