Despite a global recession, India is expected to be among the few countries that will still grow, offering foreign investors an ideal FDI destination as they look to relocate their factories away from China.
The IMF predicts India's growth rate to bounce back to 7.4 per cent next year.
India can escape recession due to its fewer linkages with global supply chains and its dependence on domestic consumption as the primary driver of GDP growth.
India's large domestic market offers significant advantages to foreign investors who wish to relocate their factories from China.
The forecast looks grim. Global ratings agency Fitch said on 2 April: “... We now expect world economic activity to decline by 1.9 per cent in 2020 with US, eurozone and UK GDP down by 3.3 per cent, 4.2 per cent and 3.9 per cent, respectively...”. On 14 April, the International Monetary Fund (IMF) cut India's growth estimate for 2020-21 from 5.8 per cent it had forecast in January to 1.9 per cent. This is near the mid-point of the World Bank's growth projection for India at 1.5-2.8 per cent for the year. There are multiple reasons for India escaping recession, the most important being its relatively low linkages with global supply chains and its dependence on domestic consumption as the primary driver of GDP growth. This means India will be less affected than other countries that depend more on global trade - which is projected to contract significantly - for their economic growth. And this should help India retain its position as one of the most attractive FDI destinations in the world.
In news that will be welcomed by India's policy planners, farmers and business leaders, the Indian Meteorological Department (IMD) has said the monsoon rains this year will be in the normal range. “In this difficult time, due to coronavirus, IMD has some good news that the monsoon in 2020 will be normal,” M. Rajeevan, Secretary, Ministry of Earth Sciences, told the media. This is excellent news for the Indian economy as almost 60 per cent of the Indian population depends on agriculture for their livelihoods. More significantly, about 60 per cent of India's farms depend on the monsoon rains for their sustenance. A good monsoon and healthy agricultural incomes are a critical driver of the Indian economy as rural India accounts for about 50 per cent of motorcycle sales, more than a third of cement and steel sales, about 40 per cent of footwear and garments sales and almost 30 per cent of FMCG sales in the country. Overall, rural demand accounts for about 45 per cent of the total consumption demand of the Indian economy.
The COVID-19 pandemic is leading to a widespread rejigging of global supply chains. The Shinzo Abe government in Japan has allocated $2.2 billion from its $1-trillion stimulus package to finance the relocation of Japanese factories out of China.