Goldman Sachs lowers growth forecast on India to 11.1%

New Delhi WALL Street brokerage Goldman Sachs has lowered its estimate for India's economic growth to 11.1 per cent in fiscal year to March 31, 2022, as a number of cities and States announced lockdowns of varying intensities to check spread of coronavirus infections.

India is suffering the world's worst outbreak of Covid-19 cases, with deaths crossing 2.22 lakh and new cases above 3.5 lakh daily. This has led to demand for imposition of nationwide strict lockdowns to stem the spread of the virus - a move that the Modi government has so far avoided after the economic devastation last year from a similar strategy. Instead, it has left it to the States to impose restrictions to manage the virus.

Several states and cities have imposed lockdowns of varying degrees. "The intensity of the lockdown remains lower than last year," Goldman Sachs said in a report. "Still, the impact of tighter containment policy is clearly visible in higher frequency mobility data across key India cities."

As containment policy has tightened, high frequency data - particularly on the services side - has taken a hit. The manufacturing side - as indicated by high frequency data on electricity consumption, and the stable April manufacturing PMI - has been more resilient.

Labour market indicators suggest that the daily unemployment rate has ticked up moderately in recent weeks, but the employment impact so far is much more contained than in April-June last year. "Overall, most indicators still suggest that the impact has been less severe than it was in Q2 (April-June) last year," Goldman Sachs said. While the lockdown impact is much less severe than last year, the recent declines in services indicators including e-way bills, mobility, rail freight and cargo traffic has led to trimming GDP estimates.

"While activity is likely to rebound quite sharply from Q3 (July-September) onwards - assuming restrictions can ease somewhat over that timeframe - the net result is to lower our FY22 real GDP growth forecast to 11.1 per cent (from 11.7 per cent previously), and our 2021 calendar year growth forecast to 9.7 per cent (from 10.5 per cent)," it said. Goldman Sachs is not the first brokerage which has downgraded the GDP growth projections. While Nomura last month downgraded projections of economic growth for the current fiscal year (April 2021 to March 2022) to 12.6 per cent from 13.5 per cent earlier, JP Morgan projects GDP growth at 11 per cent from 13 per cent earlier. UBS sees 10 per cent GDP growth, down from 11.5 per cent earlier and Citi has downgraded growth to 12 per cent. India's GDP growth had been on the decline even before the pandemic struck earlier last year.

From a growth rate of 8.3 per cent in FY17, the GDP expansion had dipped to 6.8 per cent and 6.5 per cent in the following two years and to 4 per cent in 2019-20. In the Covid-ravaged 2020-21 fiscal (April 2020 to March 2021), the economy is projected to have contracted by up to 8 per cent. RBI has projected FY22 GDP growth at 10.5 per cent, while IMF puts it at 12.5 per cent. The World Bank sees 2021-22 growth at 10.1 per cent.