US Agriculture Department Arm Projects India GDP Growth To Be Highest Globally Next Year

India’s gross domestic product (GDP) will likely rebound next year and register the highest grown among all countries, according to an outlook for US trade.

The US Department of Agriculture’s (USDA) Economic Research Service and Forest Agricultural Service and Outlook report for this month pegs India’s GDP to grow 8.8 per cent next year compared with its initial projection of a negative 2.2 per cent. China is seen behind India with an 8.6 per cent GDP growth.

Only two other countries are projected to register over five per cent GDP growth next year Indonesia (6.1 per cent) and Canada (5.2 per cent).

For the current year, the USDA arm has pegged India’s GDP growth at negative 10.3 per cent - again the highest across the countries.

Stating that the novel coronavirus (COVID-19) pandemic across the world has caused a major setback to GDP of all countries, the outlook report said expectations of real GDP numbers have improved from initial lockdown contractions.

However, recovery forecasts were still marked by uncertainty and prone to setbacks, it said.

The USDA said several promising vaccine developments have provided increased optimism pushing equities market higher and added to hopes that GDP growth may return strong next year.

At least three vaccines have reported promising results and governments across the world are gearing up for vaccinating their citizens. This is apart from the vaccine that Russia has claimed has helped it tackle COVID-19.

Global real GDP would drop by 4.4 per cent this year but this is lower than what was feared in June. The outlook report said that global trade volume will increase by 7.2 per cent next year from a drop of 9.2 per cent this year.

It said that economic recoveries would depend on the status of coronavirus pandemic and public health initiatives. While US economy would contract 4.3 per cent this year, in Europe it would be more sharper at 8.3 per cent.

In its projection for China, the USDA arm said that its growth will return to previous trend levels but would depend on many variables, including public health conditions. Consumer sentiment has been reduced and retail sales lagged the rest of economy in China, it said.

Industrial production would continue to support China’s economic trajectory but it will depend on the recovery of its trading partners.

Japan and South Korea would also register positive GDP growth, it said but did not specify reasons for India’s recovery next year.

India’s GDP in the second quarter of the current fiscal was better than expected despite a 7.5 per cent drop year-on-year. Compared with the first quarter’s 23.9 per cent fall year-on-year, the second quarter performance was impressive with the economy recovering fast.

According to economists, the most surprising aspect of India’s GDP in the second quarter was the pace at which it managed to recover from such a huge decline.

The second quarter performance has resulted in economists upgrading their forecast on Indian GDP growth next year.

On 12 November, Moody’s raised its outlook on India’s GDP to a negative 8.9 per cent from its earlier projection of a 9.6 per cent fall. For the next year, it has projected an 8.6 per cent growth in GDP.

The onset of coronavirus in March resulted in the Narendra Modi announcing a nation-wide lockdown to tackle the virus. This resulted in most of the industrial units being shut down and thus growth in the first quarter was affected.

However, the Modi government came up with the Atmanirbhar Bharat Abhiyan in the second quarter to help the economy recover with a Rs 20 lakh crore package.

The package was further enhanced by Finance Minister Nirmala Sitharaman's announcement of a stimulus package on 12 November.

Since June, the lockdown has been relaxed and industrial activities are returning back to pre-COVID levels with automobile and steel sectors witnessing good demand.