COVID-19 may slow India's growth to 5% in FY20

India may end the financial year 2019-20 with 5% economic growth and not 6.5% as projected by the Economic Survey as heavy import-dependence on China, which has been facing coronavirus outbreak, may have slowed an already plodding economy.

Official sources told DH that supply chain disruptions from China are expected to impact India's manufacturing, drugs, and other industries but they are taking solace in the fact that the oil prices will remain low for a large part of the next financial year (2020-21) and the interest rate regime will also remain low, making capital to industries available at cheap rates.

The October-December economic growth rate, which is set to be announced on Friday, is, however, likely to be in the range of 4.3% to 4.5% based on the performance of lead indicators, they said.

“The government is closely monitoring the impact of coronavirus on the economy and also looking if there is a need to airlift raw material for some sectors,” Finance Minister Nirmala Sitharaman said separately, after meeting PSU bank officials.

The April-December data for India's imports shows about 19 categories in which China has ore than half the share. These are mostly consumer goods items such as fabrics of all kinds, footware, glassware, toys, artificial flowers, umbrella and walking sticks.

Besides Indian drug-makers import close to 70% of their active pharmaceutical ingredients (APIs) from China. In 2018-19, India imported $2.4 billion worth of bulk drugs and intermediates from China.

“The impact of coronavirus on our import and, therefore, on the economy will be more pronounced in the fourth quarter (January-March 2020-21) numbers and the overall FY20 numbers,” the official said.

The government, however, expects the economy to grow between 6% and 6.5% in the year ending March 31, 2020, and reach $5 trillion by 2025 from the current $2.9 trillion.

But the forecast was made before the deadly virus hit China and spread to other regions of commercial importance to India.

“there is short term positive impact in terms of oil prices, which are going to stay range-bound for at least the next 12-18 months,” the official said, who also saw a lower interest rate regime in most parts of the globe, whose trade and commerce have been impacted by the virus.

Reserve Bank of India Governor Shaktikanta Das, who had flagged the corona virus concerns after its monetary policy committee announced the policy review earlier this month, is expected to take into account its impact on the economy before the MPC reviews the policy early in April.