Indian economy to contract 10% this fiscal year: Former finance secretary Subhash Chandra Garg

This will be the first contraction in over 40 years, due to a "faulty" COVID-19 lockdown, he said

Former finance secretary Subhash Chandra Garg on Tuesday said the Indian economy will shrink by 10 per cent or Rs 20 lakh crore in the ongoing fiscal, the first contraction in over 40 years, due to a "faulty" COVID-19 lockdown.

Garg also said that the government's Rs 21 lakh crore stimulus package is actually of only Rs 1.4-1.5 lakh crore or about 0.7 per cent of the country's gross domestic product (GDP).

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"It is certain that India's GDP will contract after 40 years in 2020-21," he said in a blogpost, adding that "it also appears fairly certain that this would be a very large contraction of about 10 per cent of GDP or loss of about Rs 20 lakh crore of income".

The former finance secretary went on to say that the 2020-21 fiscal will go down in the history of India as the year when India got way-laid from its story of three decadal outstanding growth.

Pointing out that India was not in the pink of economic health in 2019-20, he said the economy grew barely by 4 per cent for the year which happens to be the lowest growth rate in last 11 years.

Read: Moody’s downgrades India rating to a notch above ‘Junk’

Recently, rating agencies Fitch and Crisil drastically cut India's economic growth forecast for the current fiscal year due to a prolonged lockdown.

Fitch forecast 5 per cent contraction in 2020-21, a sharp decline from 0.8 per cent growth projected by the global rating agency in late April.

Crisil also predicted the economy to shrink by 5 per cent in the current fiscal. Earlier, it projected a growth of 1.8 per cent.

Also Read: We'll together take up structural reforms to change post-COVID-19 India: PM Modi to Industry

The former finance secretary termed India's lockdown strategy to contain spread of coronavirus as faulty.

"The lockdown was imposed under a naive belief that India would be able to eliminate COVID-19 from the face of India in three weeks' time.

"India decided to use the brahmastra - total economic and human lockdown - on the entire country when only a tiny part was infected," he argued.

The nationwide lockdown was first announced by Prime Minister Narendra Modi on March 24 for 21 days in a bid to contain the spread of the novel coronavirus. The lockdown was first extended till May 3 and then again till May 17. It was further extended till May 31 and now has been extended in containment zones till June 30.