India’s GDP To Contract In FY21 But Quick Rebound Likely, Says Kumar Mangalam Birla
Companies with quality leadership and sound fundamentals will emerge as champions in the new global order, Birla says.
The coronavirus pandemic and lockdowns have triggered a once-in-a-century crisis that may contract India’s economy in 2020-21, Kumar Mangalam Birla has said.
"It is estimated that about 80% of India's GDP originates from districts which were classified under red and orange zones during the lockdown, where economic activity remained severely constrained," Birla, chairman of Hindalco Industries Ltd., said in a letter to shareholders on Sunday. “Correspondingly, India's GDP is likely to contract in FY21, which would be the first such instance in over four decades.”
Covid-19 struck India at a time when underlying economic conditions were subdued on account of heightened global uncertainty and stress in the local financial system. A stringent national lockdown to slow the pandemic started in the last week of FY20 and remained active in varying degrees in different geographies through most of the first quarter of FY21.
According to Birla, the 2020 recession is different from similar downturns in the past. It is likely to be the shortest, he said, assuming there’s no second wave of infections. "It has been too sudden, almost off the cliff. Its (pandemic’s) spread has been all-encompassing, affecting almost every economy and sector, and the plunge in economic activity and employment has been unprecedented," he said.
But as present lockdowns around the world get lifted and businesses reopen, activity is likely to bounce back fairly quickly, according to Birla. “Around $9 trillion stimulus from different governments globally will help to support this recovery, along with monetary actions by central banks. These policies will also help to restrict the second-order effects like defaults and bankruptcies.”
Some scars of the crisis will remain in the form of subdued consumer and business confidence. Some sectors, like airlines and hospitality, will take time to recover fully. And some supply chain disruption effects will linger.
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“But there’s little doubt on one reality: companies with quality leadership, sound business fundamentals, and a track record of winning in turbulent times, will emerge as champions in the new global order,” he said in the letter.