UBS Securities sees GDP contracting 8.6 per cent this fiscal

K.R.Srivats New Delhi | Updated on September 16, 2020

UBS Securities Chief India Economist Tanvee Jain

We don’t see RBI is done with its policy easing cycle, says UBS Securities Chief India Economist Tanvee Jain

UBS Securities sees India’s real GDP contracting 8.6 per cent this fiscal, down from the previously estimated contraction level of 5.8 per cent, its Chief India Economist Tanvee Gupta Jain said on Wednesday.

“India is one of the few economies out of the 42 countries under UBS coverage where we are still downgrading our numbers as the downside risks still exists. In rest of the world particularly several parts of Asia we are revising our forecasts upward. Quite a contrarian thing we are seeing in India. Data is improving in India, but at much slower pace than what we are seeing in other emerging market economies,” Jain told BusinessLine.

Inflation rise

On consumer price inflation, UBS Securities sees inflation remaining above RBI’s upper tolerance band of 6 per cent in the September quarter too just as it was higher in the earlier two quarters. “We expect RBI breaching the statutory mandate of 2-6 per cent for three consecutive quarters. Our view is that inflation would decelerate to 3.5-4 per cent by December 2020. Inflation will start to ease largely led by food even as upside risks exists in next two months. CPI inflation will ease post October owing to base effect and softening food prices,” she said.

Jain also said that UBS expects RBI to further cut policy rates by 25-50 basis points in 2020-21. “The space for opening up will come in either the December or February monetary policy review. We don’t see RBI is done with its policy easing cycle,” Jain added.

In the view of UBS, there are three reasons leading to near term inflationary pressures — spike in food prices on lockdown related supply chain disruptions; cost push pressures due to higher taxes on petroleum products and higher global commodities prices like gold.

Fiscal spend

Asked about the areas where government could enhance its fiscal spend to help revive growth in the economy, Jain said the government would do well to focus on three areas — enhance spending in infrastructure and construction activities; rural or urban employment schemes and look to broaden the recently announced production linked incentive schemes to more areas beyond electronics and pharma.

“Our UBS surveys are indicating that relocation intentions to move out of China has gone up after the pandemic. There are several companies who want to move part of their production out of China and India is a favoured destination. Why not use this opportunity to drive this India growth further,” she said.

Published on September 16, 2020

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