Goldman Lowers Growth Forecast for 2021-22 to 11.1%

Wall Street brokerage Goldman Sachs has lowered its estimate for India’s economic growth to 11.1 per cent in the fiscal year ending on March 31, 2022, even as a number of cities and states announced lockdowns of varying intensities to check the spread of Covid-19 infections.

India is suffering the world’s worst outbreak of Covid-19 cases, with deaths crossing 2.22 lakh and over 3.5 lakh new cases being traced daily. This has led to demand for imposition of strict nationwide lockdowns to stem the spread of the virus — a move the Modi government has so far avoided after the economic devastation from a similar strategy last year.

Instead, it has left the decision of imposing restrictions to manage the virus on the states. Several states and cities have already 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 a 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 purchasing managers’ index (PMI) — has been more resilient.

Labour market indicators suggest 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 the impact has been less severe than it was in the second quarter last year between April and June,” Goldman Sachs said.

While the lockdown impact is much less severe than last year, 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 the third quarter (July-September) onwards — assuming restrictions could ease a bit over the timeframe — the net result is to lower our fiscal year 2022 real GDP growth forecast to 11.1 per cent (from 11.7 per cent previously), and to lower our calendar year 2021 growth forecast to 9.7 per cent (from 10.5 per cent),” it said.

Goldman Sachs is not the first brokerage that has downgraded GDP growth projections. While last month, Nomura downgraded projections of economic growth for the current fiscal (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.

India’s GDP growth had been on the decline from even before the pandemic struck earlier last year. From a growth rate of 8.3 per cent in FY17, 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 fiscal 2020-21, the economy is projected to have contracted by up to 8 per cent.

RBI has projected GDP growth in fiscal year 2022 at 10.5 per cent, while IMF puts it at 12.5 per cent and World Bank at 10.1 per cent.

New confirmed Covid cases are up sharply, from 2 lakh a day two weeks ago. Active cases have increased to 34 lakh from 15 lakh two weeks ago.

“Medical infrastructure remains under severe pressure in many large cities with acute shortages in medical oxygen, blood plasma, key drugs and hospital beds,” the report said. “Government medical panel estimates suggest the number of cases could rise to over 5,00,000 per day by mid-May.”

On the vaccine front, India has vaccinated 12.6 crore beneficiaries with the first dose and 2.73 lakh beneficiaries with the second dose, as of May 3. They make up the 9.3 per cent of total population that has received at least one dose.

“The vaccination pace has fallen to 23 lakh per day compared to 33 lakh a day two weeks ago, as key vaccine manufacturers highlight production delays on raw-material shortages,” it said. “However, these production delays are likely to be short-lived, as the US has loosened restrictions for vaccine raw material exports to India.”