India's GDP may contract in FY21 due to COVID-19 but quick rebound likely: Kumar Mangalam Birla2 min read . Updated: 16 Aug 2020, 05:00 PM IST
- The 2020 recession is turning out very different from the past recessions, Birla said
- Some scars of the crisis will remain in the form of subdued consumer and business confidence
Coronavirus and nationwide lockdown have triggered a once-in-a-century crisis that may contract India's economy in 2020-21, Hindalco Industries chairman Kumar Mangalam Birla said. "It is estimated that about 80% of India’s GDP originates from districts which were classified under red and orange zones during the lockdown, where economic activity remained severely constrained," Birla said in a letter to shareholders on Sunday. "Correspondingly, India’s GDP is likely to contract in FY21, which would be the first such instance in over four decades," Hindalco chairman added.
COVID-19 struck India at a time when the underlying economic conditions were subdued on account of heightened global uncertainty and stress in the domestic financial system, he mentioned.
A stringent national lockdown to slow the spread of the pandemic started in the last week of FY2020 and remained active to varying degrees in different geographies through most of the first quarter of 2020-21, Birla added.
The 2020 recession is turning out very different from the past recessions, Birla said. "It has been too sudden – almost off the cliff; its spread has been all-encompassing – affecting almost every economy and sector, and the plunge in economic activity levels and employment has been unprecedented," he said.
However, he is hopeful than companies will quickly turnaround. "But there is little doubt on one reality: companies with quality leadership, sound business fundamentals, and a track record of winning in turbulent times, will emerge as champions in the new global order," he added.
As present lockdowns around the world get lifted, and businesses reopen, economic activity is likely to bounce back fairly quickly, he said. On the positive side, this recession is likely to be one of the shortest, assuming no second wave of the pandemic recurs, he added.
"Around $9-trillion stimulus from different governments globally will help to support this recovery, along with the monetary actions by central banks. These policies will also help to restrict the second-order effects like defaults and bankruptcies," Birla said.
Some scars of the crisis will remain in the form of subdued consumer and business confidence. Some sectors, like airlines and hospitality, will take time to recover fully. And some supply chain disruption effects will linger. As the world emerges from the current crisis, the next few years are likely to be marked by lack of buoyancy in growth, subdued commodity prices and inflation, a cautious trend in project investments, heightened risks of de-globalisation and political uncertainty; and increased dependence of financial systems on ultra-loose monetary policy conditions, Birla said.