Ex-RBI Governor: India's economy likely to contract 5% in FY21, USD/INR eyes 76.00

Former Reserve Bank of India (RBI) Governor Duvvuri Subbarao said in a statement on Thursday, he expects India's economy to contract 5% in the current financial year (FY21).

However, he was quick to add that India’s GDP could expand by around 5% in the next financial year (FY22).

Key quotes

“I do believe that getting up to 5 percent in FY22 is quite probable. The reason I say that is because this (COVID-19) is not a natural disaster.”

“Our factories are still standing, our infrastructure and transport systems are still there.”

'Once the lockdown is lifted and the economy is given a green signal to restart, I am sure that we can ramp up pretty soon and reach at least 5 percent (growth rate).'

“For a poor country like India, it would mean enormous pain and hardship for millions of low-income persons, firms and enterprises, especially in the informal sector, going bankrupt and it could mean its financial stability becoming vulnerable.”

'I, for one, believe that the government should borrow more in order to spend more. That is a moral and political imperative. But I don't support the view that the government should resort to open-ended borrowing.'

Market reaction

USD/INR has bounced off low and looks to regain the 76 barrier, tracking the broad US dollar comeback, in light of looming US-China tensions.

The Indian rupee fails to benefit from the ongoing surge in the domestic equity markets. At the press time, the spot drops 0.08% to 75.84 levels.