Indian economy set for post-COVID-19 rebound as FDI remains buoyant: IHS Markit

IHS Markit expects the Indian economy to rebound in the second half of 2020 as the impact of the COVID-19 pandemic subsides, and predicts 6.7 percent growth in the next financial year.

Severe disruptions in industrial production and consumption spending occurred by coronavirus pandemic in India during April and May.

The London-based global information provider said in its outlook on the Indian economy, "The severe negative impact is expected to result in a significant contraction in GDP in the April-June quarter of 2020, resulting in a recession in the 2020-21 financial year with GDP expected to contract by 6.3 percent year-on-year."

However, as lockdown conditions have been progressively eased, early signs of recovery were evident in the most recent economic data.

The IHS Markit Purchasing Managers' surveys for India showed that economic momentum improved in June, reflecting the easing of COVID-19 related restrictions during May and June.

India imposed a total lockdown beginning March 25 and restrictions were eased from May.

"IHS Markit forecast that the Indian economy will rebound as the impact of the pandemic recedes, with improving economic growth momentum in the second half of 2020 and positive GDP growth of 6.7 percent in the 2021-22 financial year," said Rajiv Biswas, Asia Pacific Chief Economist at IHS Markit.

Despite the negative short-term shocks from the pandemic, total foreign direct investment into India has remained buoyant. Foreign direct investment by technology firms in the first seven months of 2020 has already reached around USD 17 billion, boosted by the USD 10 billion new investment announced by Google in mid-July.

Facebook, Amazon, and Foxconn are among the other global technology firms that have committed large new investments into India this year, IHS said.

"A major boost to investor confidence in the Indian medium-term economic outlook has come from new foreign direct investment into India announced during 2020 by US technology companies like Google, Facebook, and Amazon," Biswas said.

IHS said the medium-term economic outlook for India remains favourable, supported by a number of key growth drivers.

"An important positive factor for India is its large and fast-growing middle class, which is helping to drive consumer spending. Total Indian consumer spending is forecast to grow by 42 percent between 2020 and 2025, measured in USD terms at constant prices," it said.

IHS Markit forecast India's consumption expenditure to double from USD 1.6 trillion in 2020 to USD 3.2 trillion by 2030, measured in constant prices, boosted by strong average annual GDP growth and rapidly rising per capita incomes for the country's fast-growing middle-class urban households.

"The digital transformation of India that is currently underway is expected to accelerate the growth of e-commerce, changing the retail consumer market landscape over the next decade. This is attracting leading global multinationals in technology and e-commerce to the Indian market," Biswas said.