The international research and broking house expects the central government’s fiscal deficit to widen to 7 per cent of GDP in FY21, well above the 3.5 per cent target and much higher than their earlier forecast of 5.1 per cent. This, they believe, could be led by another round of stimulus measures to augment the ones announced earlier.
"So far, the RBI has announced a raft of policy easing measures. With the RBI poised to 'do whatever is necessary', we believe more easing is likely, including 75 bps more of repo rate cuts and further unconventional policy measures," wrote Varma, managing director and chief India economist at Nomura in a co-authored report with Aurodeep Nandi dated May 8.
Analysts at Goldman Sachs, another international group, expect the economy to contract 0.4 per cent in FY21 versus consensus median 2.7 per cent following the extension of the nationwide lockdown. In April, they had expected the GDP growth to slip to 1.6 per cent in FY21.
“We expect GDP growth of -20 per cent (q-o-q annualised) in Q2; while we have upgraded our expectations of recovery after midyear, with a 10 per cent and 14 per cent quarter on quarter (q-o-q) annualised GDP gain in Q3 and Q4 respectively,” wrote Andrew Tilton, Goldman Sachs' chief Asia-Pacific economist, in a co-authored report with Prachi Mishra dated May 07.
Tilton and Mishra forecast an average headline CPI inflation for FY21 at around 4 per cent, which also is the RBI’s medium-term target. Rising food prices in the short-run, they believe, would likely be offset by lower fuel prices and a lower core amidst the eight-week nationwide lockdown. “Over the course of the year, we forecast food prices to ease, while the core picks up as the economy recovers sequentially,” Goldman Sachs
expects the central bank to cut rates by 100 basis points (bps) between now and the third quarter of calendar year 2020 (Q3-2020), as compared with their earlier forecast of 50 basis points. Markets, they believe, are pricing in a cut of 50 – 75 basis points.