India GDP growth slows to 4.2%; lockdown stays at manufacturing hubs

Pearl Bantillo


SINGAPORE (ICIS)–India, an emerging market giant, posted its slowest growth in more than a decade, while yet to show the full impact of a nationwide lockdown that brought economic activity to a standstill for more than two months.

The nationwide lockdown was due to be lifted this week, but restrictions will remain in place until the end of June for areas considered as high risk – referring to those with elevated number of novel coronavirus infections.

For the fiscal year ending March 2020, the country’s GDP growth decelerated to 4.2% from 6.1% in the previous year, with March-quarter growth slowing to 3.1%, official data showed.

Research firm Oxford Economics said the agriculture and services sectors provided buffers, preventing the economy from posting a sharper contraction in the March quarter, but a double-digit contraction is projected for the June quarter.

“However, we expect much deeper damage going forward. High frequency data clearly indicate that the economy went into a tailspin in April and recovery prospects remain clouded amid rising Covid-19 [coronavirus disease 2019] cases and limited macro policy support,” said Priyanka Kishore, economist at Oxford Economics, in a note.

While the nationwide lockdown is being eased, strict social-distancing measures will remain in place in areas in the manufacturing hubs of Gujarat and Maharashtra, including Mumbai.

Most plastics processors in the country are running at reduced capacity of 40-60% due to labour shortage.

“While the country is re-opening now, recovery prospects continue to be hampered by a number of factors,” Oxford Economics’ Kishore said, citing that “high-risk coronavirus zones remain clustered in the richer states, delaying a resumption in their activities”.

Kishore added that “even outside of these locations, we do not expect activity to reach normal levels anytime soon, especially as the virus is yet to be suppressed”.

For the calendar year ending December 2020, Oxford Economics expects the Indian economy to contract.

“Adding to these problems is the limited macro policy support delivered so far, as it has failed to position the economy for a strong post-lockdown recovery,” Kishore said.

The Indian government has launched a fiscal and monetary stimulus worth rupees (Rs) 20tr ($265bn) to counter the economic fallout from the pandemic, with the first tranche meant to shore up badly hit small and medium enterprises.

As of end-May, India has a total of 182,143 confirmed coronavirus cases with 5,164 deaths, according to data from the World Health Organization (WHO).

The pandemic, which started late last year in China, has so far infected nearly 6m people, with the death toll at more than 360,000.

India appears bent on putting up trade barriers to protect its industry amid the pandemic.

It has proposed a 15% import tax – dubbed as “Covid tax” that was supposed to be in place from May to March 2021 – but was vigorously opposed by downstream manufacturers as this meant higher cost of production for those that require imported material.

Market sources said that about 30 products may be subject to antidumping investigations.

More recently, an antidumping probe was launched on acrylonitrile butadiene rubber (NBR) imports from China, the EU, Japan and Russia.

For phthalic anhydride, a safeguard duty of 7.5% was recommended on South Korean material for a period of 200 days.

There were some initial signs that petrochemical imports are improving in the country ahead of the monsoon season in mid-June.

Demand for polyvinyl chloride (PVC) pipes is picking up from the agriculture sector, which prompted local petrochemical major Reliance Industries to hike its PVC offers for the third time in 11 days on 29 May.

In the phenol market, a sudden spike in US-origin volumes for June loading was recorded in the week ended 22 May. The volume at more than 10,000 tonnes done was more than five times the usual weekly spot volumes in the country.

A number of downstream plants in the country remained either shut or operating at reduced rates since the nationwide lockdown in late March.

Focus article by Pearl Bantillo

Additional reporting by Helen Yan, Ai Teng Lim, Angeline Soh, Veena Pathare and Zhi Xuan Ho

($1 = Rs75.53)

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