India’s growth to fall to 29-year low of 2.2% in FY 20/21 – Morgan Stanley

Morgan Stanley’s India Economist, Upasana Chachra, said in her latest client note, India’s gross domestic product (GDP) growth is seen falling to a 29-year low of 2.2% this financial year before recovering to 5.5% next year.

Key quotes

“We expect a gradual recovery in growth, since disruptions related to Covid-19 have occurred at a weak starting point of the growth cycle. As such, we expect a natural rebound in economic activity as lockdown measures ease.

Expect New Delhi to provide additional temporary fiscal package of approximately 1% of GDP through combination of increasing fuel taxes and widening headline fiscal deficit to 5%.

Expect 40 basis points of rate cuts, expects central bank to continue to provide adequate liquidity through long-term repo operations and targeted long-term repo operations.

If growth conditions take longer to recover, a temporary liquidity support window for NBFC's and mutual funds can be considered.”