Indian Economic Outlook

Global headwinds and challenges in the domestic financial sector moderated the growth of Indian economy in 2019-20. The real GDP growth moderated to 5.0 percent in 2019-20 as compared to 6.8 percent in 2018-19.  The economy is likely contracting sharply in Q1 FY 2020, which runs from April to June. The government announced on 30 May that it was extending the national lockdown up to 31 June, although states have been given more control over re-opening their respective economies. Economic data paints a grim picture: The private-sector PMI slumped in April to the lowest reading since current records began in December 2005, while industrial production plunged year-on-year in March at the fastest pace since at least April 2006. Exacerbating matters, Cyclone Amphan caused severe damage to life and infrastructure in the north east in late May. With the prolonged country-wide lockdown, global economic downturn and associated disruption of demand and supply chains, the economy is likely to face a major slowdown. The magnitude of the economic impact will depend upon the duration and severity of the health crisis, the duration of the lockdown and the manner in which the situation unfolds once the lockdown is lifted.

India’s Macroeconomic Indicators

Indicators 2015-16 2016-17 2017-18 2018-19 2019-20
GDP (at current prices, US$ Bn) 2148.4 2287.2 2625.9 2779.2 3013.6
GDP Per capita (US$) 1641.2 1727.3 1960.8 2057.3 2201.3
Real GDP Growth 8.0 8.2 7.2 6.8 5.0 Apr- March)
Agriculture& allied activities 0.6 6.3 5.0 2.9 2.0
Industry 9.6 7.7 5.9 6.9 2.7
Services 9.4 8.4 8.1 7.5 6.9
Population (Mn) 1309.1 1324.2 1339.2 1354.0 1369.0
Inflation rate (CPI, annual avg. %) 4.9 4.5 3.6 3.4 3.2
Inflation rate (WPI, annual avg. %) -3.7 1.7 2.7 4.3 1.1
Gross Fiscal Deficit (% of GDP) 3.9 3.5 3.5 3.4 3.3


The Index of Industrial Production (IIP) grew at 0.6 percent during April-November 2019 as compared to 3.8 percent in 2018-19. Mining, manufacturing and electricity sectors in IIP grew at (-) 0.1 percent, 0.9 percent and 0.8 percent respectively during April November 2019. The full year growth in these three sectors in 2018-19 was 2.9 percent, 3.9 percent and 5.2 percent respectively. The eight core infrastructure supportive industries such as, coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity that have a total weight of nearly 40 percent in the Index of Industrial Production (IIP) remained stagnant during April-November 2019 as compared to a growth of 4.4 percent in 2018-19. The production of fertilizers, steel, and electricity increased by 4.0 percent, 5.2 percent, 0.7 percent respectively during April-November 2019 while the production of coal, crude oil, natural gas, refinery products and cement contracted by 5.3%, 5.9%, 3.1%, 1.1% and 0.02% respectively during the same period.

In March 2020 India’s core sector output contracted 6.5% in March, marking the worst performance by the key infrastructure areas going back to 2005, as the nationwide lockdown to combat the spread of covid 19 stalled the economy. With the lockdown in place throughout April, which is expected to have severely curtailed production in many core sectors, the contraction in core sector output is likely to worsen to alarming levels in that month. The index of Eight Core Industries captures the output of coal, crude oil, natural gas, steel, cement, fertilisers, electricity, and refinery products. The index has a 40.27% weight in the Index of Industrial Production (IIP), suggesting a sharp contraction in that indictor as well in March. Crude oil production contracted 5.5%, natural gas 15.2%, refinery products 0.5%, fertilisers 11.9%, steel 13%, cement 24.7% and electricity 7.2% during the month. Coal was the only sector that grew 4%.

Monetary Management and Financial Intermediation

Monetary policy remained accommodative during 2019-20. Five meetings of the Monetary Policy Committee (MPC) have been held so far in financial year 2019-20. In the first four meetings, the MPC decided to cut the policy repo rate. The repo rate was reduced by 110 basis points (bps) from 6.25 percent in April 2019 to 5.15 percent in October 2019. In its fifth bi-monthly monetary policy statement in December 2019, the MPC decided to keep the repo rate unchanged at 5.15 percent. The growth of reserve money as on December 27, 2019 was 10.2 percent over 17.0 percent in December 27, 2018.

In March 2020, the Reserve Bank of India (RBI) has said the outlook for domestic financial markets remained highly uncertain and the coronavirus pandemic would accentuate growth slowdown. The central bank also reaffirmed that better transmission of monetary policy impulses would remain a priority. Reserve Bank has announced to conduct auctions of targeted long-term repos of up to three years tenor of appropriate sizes for a total amount of up to Rs 1, 00,000 crore at a floating rate linked to the policy repo rate. Liquidity availed by banks under TLTROs should be deployed in investment grade corporate bonds, commercial paper, and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 27, 2020. CRR requirement of banks was reduced by 100 bps from 4 per cent of NDTL to 3 per cent effective fortnight beginning March 28, 2020, which would augment primary liquidity in the banking system by about Rs 1,37,000 crore.

Banking and Non-Banking Sector  

During 2019-20, gross non-performing advances (GNPA) ratio of Scheduled Commercial Banks (SCBs) remained unchanged at 9.3 percent in September 2019 as compared to March 2019. Similarly, the restructured standard advances (RSA) ratio of SCBs remained unchanged at 0.4 percent during the same period. The stressed advances (SA) ratio of SCBs followed suit by remaining flat at 9.7 percent. GNPA ratio of public sector banks (PSBs) was also unchanged at 12.3 percent in September 2019 while stressed advances ratios increased from 12.7 percent in March to 12.9 percent in September, 2019.

Ideally, the sharp deceleration in the April and May 2020 manufacturing activity shouldn’t be a surprise to anyone. Economic activities have come to a total standstill since late March when the nationwide lockdown was announced by Prime Minister Narendra Modi. Even then, the fall in Nikkei manufacturing Purchasing Managers’ Index (PMI) to 27.4 in April from 51.8 in March is a shocker. It the sharpest deterioration in business conditions. This development also does not augur well for Indian banks. Banks in the country are likely to witness a spike in their non-performing assets ratio by 1.9 per cent and credit cost ratios by 130 basis point in 2020, following the economic slowdown on account of COVID-19 crisis. Bankers and analysts expect significant spike in NPAs going ahead. The pain may not be visible immediately since the Reserve Bank of India (RBI) has extended regulatory relaxations. The moratorium period will end soon and companies and individual borrowers will have to resume repayments from July. With no business happening, workforce availability remaining an issue and rampant pay cuts, it is doubtful how many borrowers will have repayment capacity.


Prices Consumer Price Index (Combined) (CPI-C) inflation for 2018-19 declined to 3.4 percent from 3.6 percent in 2017-18 and 4.5 percent in 2016-17. It averaged 4.1 percent in 2019-20 and stood at 7.3 percent in December, 2019. Food inflation based on Consumer Food Price Index (CFPI) for 2018-19 declined to 0.1 percent from 1.8 percent in 2017-18 and 4.2 percent in 2016-17. Inflation measured in terms of Wholesale Price Index (WPI) stood at 4.3 percent in 2018-19 as compared to 3.0 percent in 2017-18 and 1.7 percent in 2016-17. Government has taken various measures from time to time to stabilize prices of essential food items through, inter-alia, trade and fiscal policy instruments like import duty, minimum export price, export restrictions, imposition of stock limits besides advising States for effective action against hoarders & black marketers to regulate domestic availability and moderate prices. For increasing productivity and production in key segments of agriculture towards moderating prices, government has been incentivizing farmers by announcing minimum support prices and implementing schemes such as Mission for Integrated Development of Horticulture (MIDH) and, National Mission on Oilseeds and Oil Palm (NMOOP), among others. Government is also implementing Price Stabilization Fund (PSF) to help moderate the volatility in prices of agri-horticultural commodities like pulses, onion, and potato.

The ongoing health crisis around COVID19 has affected agriculture sector too. Protecting lives of people suffering from the disease as well as frontline health responders have been the priority of Indian government. During these challenging times, how does Indian Agriculture respond to the crisis and how do government measures affect 140 million farm households across the country and thereafter impact the economy of a very important country in the developing world.  The Indian Council of Agricultural Research (ICAR) has issued state-wise guidelines for farmers to be followed during the lockdown period. The advisory mentions specific practices during harvest and threshing of various Rabi (winter sown) crops as well as post-harvest, storage and marketing of the farm produce. The Reserve Bank of India (RBI) has also announced specific measures that address the “burden of debt servicing” due to COVID19 pandemic. Agricultural term and crop loans have been granted a moratorium of three months (till May 31) by banking institutions with 3 percent concession on the interest rate of crop loans up to INR 300,000 for borrowers with good repayment behaviour.

Capital Market

The primary market resource mobilization through 85 public and rights issues was ` 73,896 crore during 2019-20 (up to December 31, 2019) as against 124 issues which had raised ` 44,355 crore during 2018-19 (up to December 31, 2018). Funds raised through private placement of 1,520 issues amounted to ` 6.29 lakh crores in 2019-20 (up to December 31, 2019) as compared to ` 5.3 lakh crores through 2006 issues in the 2018-19. India’s benchmark indices, namely, Nifty 50 and S&P BSE Sensex index, have continued to grow during 2019-20. The S&P BSE Sensex, the benchmark index of Bombay Stock Exchange (BSE), reached an alltime high closing of 41,681 on December 20, 2019, witnessing an increase of 7.2 percent from the level of 38,871 on April 1, 2019. Nifty50 index gained 5.3 per cent over April1, 2019 to close at 12,226 on January 3, 2020. Average annual growth of BSE and Nifty50 in 2019-20 (April-December) was 8.9 percent and 5.7 percent respectively.

A Comparison of Pre and Post COVID View of Indian Stock Markets

Bourses Indexes 14 Jan 2020 Indexes 23 Mar 2020 Indexes 24 Apr 2020
Nifty 12, 362 7,610 9,154
Sensex 41,952 25,981 31,327

Ever since COVID 19 strike, markets loom under fear as uncertainty prevails. lt has sent markets around the world crashing to levels not witnessed since the Global Financial Crisis of 2008. Following the strong correlation with the trends and indices of the global market as BSE Sensex and Nifty 50 fell by 38 per cent. The total market cap lost a staggering 27.31% from the start of the year. In response to current turmoil, RBI and the Government of India has come up with a slew of reforms such as reductions of repo rate, regulatory relaxation by extending moratorium and several measures to boost liquidity in the system howsoever the pandemic has impacted the premise of the corporate sector. Payments deferrals, subdued loan growth, rising cases of bad loans and sluggish business conditions have impaired the growth and the health of the economic activity. Deceleration of GDP growth, demand-supply chain, cut in discretionary expenses and CAPEX has been the observed during the lockdown, which has led to falling in household incomes, marketing spends, reduced travel cost and hiring freeze.

Companies with innovative products, increasing distribution reach, technology-driven processes and healthy balance sheet would revive the growth momentum post lockdown. Lower oil prices and high capital expenditure by the government in turn creating capital which will provide a platform to flourish when we overcome COVID 19 pandemic.

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