The Reserve Bank of India on Friday admitted that its projections of the Gross Domestic Product growth rate for 2019-’20 were off the mark, even before the coronavirus outbreak besieged the economy. The central bank made the admission in its April 2020 Monetary Policy Report.
Government figures for the third quarter of 2019-’20, which came in early this year, had showed that GDP growth sank to a 27-quarter low of 4.7%. In its October 2019 Monetary Policy Report, the RBI had projected second quarter growth at 5.3% and third quarter growth at 6.6%.
“Actual outcomes in terms of the NSO’s [National Statistical Office’s] second advance estimates undershot these projections by 20 and 190 basis points in Q2 and Q3 respectively,” the central bank said in its April report. The RBI said the lower growth rates compared to the forecast were the result of contraction in gross fixed capital formation in both quarters.
The bank added that there was also a decline in private final consumption expenditure in the second quarter due to weak rural demand, deceleration in rural wages and downturn in labour-intensive exports.
The central bank also said that in urban areas, sales of passenger vehicles continued to contract in February this year, which falls under the fourth quarter of 2019-’20. Domestic air passenger traffic slowed in January, and the consumer durables sector also declined. Subsequently, the outbreak of the Covid-19 pandemic, which India grossly felt in March, caused urban consumption to continue its decline.
“The Covid-19 outbreak and the subsequent lockdown are expected to bring down the aggregate demand drastically, both in rural and urban areas,” the RBI said. “The government has announced a slew of measures to offset the adverse impact on rural demand. However, rural demand is expected to go down further at least in the near future.”
By Friday morning, India had reported 6,412 cases of the disease, including 199 deaths, according to the Ministry of Health and External Affairs.
The Centre imposed a 21-day nationwide lockdown from March 25 to prevent the spread of the virus. On March 26, the government announced a relief package of Rs 1.7 lakh crore to help the poor tide over the impact of the lockdown. The benefits – through cash and food – were targeted at farmers, migrant workers, the poor, women and the disabled, among others. The lockdown period may however be extended.
Earlier this month, United States-based multinational investment bank Goldman Sachs cut India’s growth forecast for 2020-’21 from 5.8% to 1.6% due to the pandemic. The RBI had in early February set the growth projection at 6%.