While the International Monetary Fund has forecast that India’s economy will contract 4.5% in FY21, S&P Global Ratings has predicted it to contract by 5%
NEW DELHI| The contraction in the Indian economy may be much as is being anticipated by various economists and rating agencies, veteran banker and former head of New Development Bank KV Kamath on Tuesday.
While speaking to Network 18 Editor in Chief Rahul Joshi’s in an interview Kamath said the landing because of COVID-19 crisis will not be as hard as was being anticipated, offering a contrarian view to the numbers predicted by the likes of IMF and S&P.
He said, “I feel the landing will not be so hard. Rebound is faster than what most of us thought would be. The economy may see a shallow U-shaped recovery.”
While the International Monetary Fund (IMF) has forecast that India’s economy will contract 4.5% in FY21, S&P Global Ratings has predicted it to contract by 5%.
Kamath, the former CEO of ICICI Bank for 13 years and the chairman of Infosys for nearly four years, opined that these numbers need to be seen with a caveat, as they are based on mathematical models and it is very difficult to predict what happens next in a global pandemic scenario.
Offering a more optimistic take on India’s economic recovery, he said that he thinks it will be U-shaped but with a very shallow and short base. “My initial thoughts were this would be a U-shaped with a very long base.” He further added that he now thinks things will come around much quicker.
He also said, “Maybe next month, I would be pleasantly surprised and it is a V-shaped recovery.” But added that hard date from more industries is needed to take a better call.
Kamath said his confidence of a faster rebound was based on a different set of numbers high frequency data that present a different picture about the state of the economy.
Giving a sector-wise overview, he said that he was most positive about the farm sector, which he said is already showing signs of a quick turnaround as rural India has been much less affected by the pandemic. Talking about larger industries he said may come back very rapidly as top Indian companies have never been as deleveraged as they are today.
“Leader after leader talking about manufacturing getting back to 80-90 % capacity. Several indicators are showing rebound is faster. Electricity consumption, for example, is getting back up to normal levels. Two-wheelers sales and tractor sales are soaring,” he said.
The veteran banker, however, said that construction, real estate, infrastructure and financial services will face a degree of pain because of the pandemic and will need a holding hand from the government to get back on the growth track.