Worst yet to come? India hits an all time credit crunch

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India’s fourth recession since independence, the first since liberalization and perhaps the worst to date, is here. As predicted the economy is expected to shrink by 5 per cent in the current fiscal because of Covid-19 lock down. “The first quarter (April to June 2020) will suffer a staggering 25 per cent contraction,” it said in its assessment of India’s GDP. “About 10% of gross domestic product (GDP) in real terms could be permanently lost. So going back to the growth rates seen before the pandemic is unlikely in the next three fiscals.”

In the past 69 years, India has seen a recession only thrice – as per available data – in fiscals 1958, 1966 and 1980. The reason was the same each time – a monsoon shock that hit agriculture, then a sizable part of the economy. Even though the monsoon is expected to be normal this time, the imposition of Covid-19 lock down on March 25 and extended thrice till May 31, has curtailed economic activity severely.

“The first quarter of this fiscal will be the worst affected,” it said. “Not only will the first quarter be a washout for the non-agricultural economy, services such as education, and travel and tourism among others could continue to see a big hit in the quarters to come. Jobs and incomes will see extended losses as these sectors are large employers.” It also saw economic activity in states with high coronavirus cases suffering prolonged disruption as restrictions could continue longer.