Despite stimulus, economy to contract , say analysts

Mumbai, May 18

The government’s reform moves and stimulus package will only help the deeply-impacted growth process in the medium term of over three years and will not push up the GDP in the short term, analysts at two foreign brokerages said on Monday.

The analysts at Bank of America (BofA) and Nomura maintained their earlier GDP estimates suggesting a contraction of 0.1% and 5%, respectively, for FY21 even after the announcement of the Rs 20 lakh-crore economic package.

Prime Minister Narendra Modi had last week announced a stimulus of up to Rs 20 lakh crore or 10% of GDP, with a view to help arrest the slide in growth because of the Covid-19 pandemic.

Finance Minister Nirmala Sitharaman announced the specifics of the package in a series of press conference ending Sunday.

“The package may fall short of mitigating the near-term challenges for some businesses, but it is better designed to improve India’s medium-term growth potential and attract long-term risk capital,” analysts at the Japanese brokerage Nomura said. They also added that there are no “silver bullets” in the package.

BofA said the Reserve Bank will go for a 0.75% more of rate cuts by October and conduct open market operations of $75 billion to find the fiscal deficit. — PTI