By Vibhuti Agarwal 

NEW DELHI -- India said Friday that its gross-domestic-product growth slowed to a 11-year low last fiscal year as a nationwide coronavirus lockdown started to strangle the already struggling economy.

For the year ended March 31, India's gross domestic product grew 4.2%, according to government data released Friday. The last time it was that low was the year through March 2009. In the quarter ended March 31, GDP growth was 3.1%, down from the previous quarter's 4.7% expansion.

The current quarter and year are likely to be much worse, economists said, as its nationwide lockdown -- the world's biggest, encompassing all of its 1.3 billion citizens -- only started in the last week of March.

Since then it has choked consumption, production, investment and government spending. The country's GDP could shrink 5% in the current financial year, which would be its worst performance in decades.

India has been a high-growth economy for most of this century and was the world's fastest-growing large economy just a few years ago but now looks to be headed for its first full-year contraction since 1980. Its unemployment skyrocketed to more than 25% due to the shutdown of the economy, according to the Centre for Monitoring Indian Economy, a private data provider.

There are some signs that India may be getting harder hit than other economies.

Data firm IHS Markit's purchasing-managers index for India's services sector collapsed to 5.4 in April from 49.3 in March, the largest single-month drop in that measure of activity for any country at any time since it started collecting data in 2005. A reading below 50 points to a contraction. India's numbers are equivalent to a 15% contraction of GDP during that month.

Ratings agency Crisil said Tuesday that even though New Delhi has begun easing restrictions in areas less affected by the pandemic, the economy will likely contract 5% this year, its worst performance since independence in 1947.

"Partial relaxations continue to be a hindrance to supply chains, transportation and logistics. Hence, unless the entire supply chain is unlocked, the impact of improved economic activity will be subdued," Dharmakirti Joshi, chief economist at Crisil said.

Policy makers have stepped up fiscal and monetary stimulus but economists warn these would take time to get India back on a better growth trajectory.

Government-stimulus packages and monetary-easing measures aren't as effective in India as they are in rich countries, economists say. So much of the economy is powered by small family businesses which rarely take bank loans or pay taxes that it takes a lot longer for pump-priming policies to permeate the economy and trigger growth.

"The government's package is aimed at the survival phase of growth to address the need of firms, vulnerable segments of the population and resource constraints faced by states," Nomura economist Aurodeep Nandi said. "This seems designed to more prevent a deeper slump in the near term than offer a demand-side boost."

Many of India's biggest megacities -- including Mumbai and New Delhi -- are still largely locked down even as the government eases restrictions elsewhere. This is a big problem for the whole economy because they are crucial sources of demand as well as production.

The continued restrictions have forced millions of domestic migrant workers to flee the cities, where they have no jobs and few ways to feed themselves as their meager savings have run out. If they don't return to the cities -- and many swear they will never return after being abandoned by their employers and left to fend for themselves -- growth could suffer as most Indian factories, restaurants and households depend on them.

(END) Dow Jones Newswires

May 29, 2020 09:30 ET (13:30 GMT)

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