Indian Economy to Contract by 5% in FY21, Reform Measures to Help Medium-term Growth: Goldman Sachs

American brokerage Goldman Sachs expects the Indian economy to contract by 5 per cent in FY21, making it the worst performance by the country ever.

The brokerage said the GDP will contract by a mind-boggling 45 per cent in the June quarter as compared to the January-March period on an annualised basis, because of the continuing lockdown which is chilling economic activity, before recovering later.

A slew of watchers are expecting a contraction in the Indian economy in FY21, some even after the Rs 20 lakh crore stimulus announced by the government. Goldman was earlier expecting a 0.4 per cent contraction before revising it down to a level it shares with Japanese brokerage Nomura.

"The -5 per cent growth we forecast for FY21 would be deeper compared to all 'recessions' India has ever experienced," its analysts wrote in the note.

The virus continues to spread in India, resulting in the pushing of the nationwide lockdown with gradual relaxation of restrictions, while concerns among consumers and businesses continue, it said.

The rebound from a quarterly perspective will be very strong in the September quarter, it said, expecting a 20 per cent growth in GDP over the level of June-end, but added that the same will be gradual from then on.

Joining its peers, the brokerage also said that the reform measures announced by the government will help growth only over the medium term and are not expected to have any benefit in the near-term.

In line with its peers, the brokerage also said that the fiscal impact of the stimulus measures announced by the government is very small at 1.3 per cent of GDP.

The brokerage said while the slow growth may result in calls for even more stimulus from the government, the likely help will be smaller as compared with the post 2008 crisis as well because of the fiscal situation in India.