OECD warns Indian economy can contract 7.3% in FY21 if there's second wave of coronavirus

The Organisation for Economic Co-operation and Development (OECD) has said that India's economy may contract by as much as 7.3 per cent in FY21 in case of a second coronavirus outbreak by year end. Otherwise, the economy is expected to shrink at 3.7 per cent, the intergovernmental economic organisation said in its latest Economic Outlook. Earlier in March, OECD had projected the GDP to grow at 5.1 per cent.The report also said that the government's fiscal deficit is likely to stand between 8.2 per cent and 8.9 per cent in the ongoing fiscal, indicating shrinking tax revenue.

"In the double-hit scenario, a renewed virus outbreak will require a new general shutdown in the autumn. New restrictions on internal migration and disruptions in supply chains would have severe consequences on activity and income while external demand would falter again. In this case, GDP is projected to fall by 7.3% (in India) in FY 2020-21, compared to 3.7% in the single-hit scenario," OECD said in its Economic Outlook.

The report also said that even as Indian economy may recover from coronavirus crisis, it may see some impact. Indian economy will recover as lockdown measures are eased, but will suffer from scars. "Pent-up demand from postponed consumption and inventory restocking will boost activity. However, domestic demand will suffer from the permanent loss of income in many enterprises and the informal workers who lost their jobs. Uncertainty over the return of working migrants, the difficulty for small enterprises to finance their working capital, and business closures will disrupt supply chains," it added

On global outlook, OECD estimated a contraction of 6 per cent for global growth in 2020. However, it also sees a strong 5.2 per cent rebound next year. "With little prospect of a vaccine becoming widely available this year, and faced with unprecedented uncertainty, the OECD has taken the unusual step of presenting two equally likely scenarios - one in which the virus is brought under control, and one in which a second global outbreak hits before the end of 2020," OECD said on coronavirus crisis.

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