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Home / News / India /  India’s fragile economic rebound faces new risk from coronavirus

Just as India’s economy starts to show signs of a recovery, the coronavirus outbreak is looming as a new threat.

Data on Friday is set to show growth accelerated for the first time in seven quarters, reaching 4.7% in the three months through December from a year ago, according to the median forecast in a Bloomberg survey of economists. That was before the virus began spreading early this year, disrupting global supply chains as China shut factories and restricted the movement of people to contain the epidemic.

The pickup in India’s growth last quarter from 4.5% in the previous three months probably came from a rebound in farm output, an improving services industry and rising government spending. But the recovery remains uneven, with a slew of high-frequency indicators showing consumption -- which accounts for 60% of gross domestic product -- is still weak.

As a result, economists expect the government to retain its estimate of 5% GDP growth for the fiscal year through March, an 11-year low.

The coronavirus adds a new layer of complication. The World Bank sees global economic growth in the first half of 2020 likely falling short of the 2.5% pace it forecast for the full year amid supply disruptions of everything from automobile components to pharmaceutical ingredients.

India imports more than one-fifth of its total non-oil, non-gold goods from China, and production halts there pose downside risk to domestic manufacturing, economists said.

“Temporary price increases are likely to be accompanied by production delays if the pain spills over into the April-June quarter," said Radhika Rao, an economist at DBS Group Holdings Ltd. in Singapore.

Rate Cuts

Even before the virus began spreading, surveys showed consumer spending was in the doldrums while business sentiment was frail with the economy still grappling with the aftermath of a shadow banking crisis that has crippled credit growth. Factory output contracted in two of the three months in the fourth quarter of 2019, data show.

The enduring weakness in some sectors of the economy, along with the threat from the coronavirus have persuaded the Reserve Bank of India to keep the door open for more policy easing after cutting interest rates by 135 basis points last year. The virus may “impact tourist arrivals and global trade," the RBI said at its most recent policy meeting in February.

Finance Minister Nirmala Sitharaman has said the government is ready to respond with measures to counter the effect the virus may have on domestic industry.

On Feb. 1, she unveiled a budget with modest steps to stimulate consumer demand in the form of changes to personal income tax rules. That, together with the lower corporate tax rates announced last year, are likely to have a lagged effect on growth and demand.

“An economic recovery is underway," said Rahul Bajoria, a senior economist at Barclays Plc in Mumbai. “However, elevated inflation will likely rule out further rate cuts by the monetary policy committee in the near term."

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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