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Coronavirus impact: India's external sector to be hit due to growth slowdown

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India's external sector is expected to be adversely impacted due to prolonged growth slowdown, a report said. As of now, the sector is comfortably placed owing to muted crude oil prices in the international market, the SBI research Ecowrap report said on Monday. The external sector of a country's economy refers to all international economic transactions between residents of the country (private and public sector) and the rest of the world.

India may end FY21 with a current account surplus if the international oil prices remain weak and don't show volatility in the remaining part of the fiscal. "We are facing similar growth challenges now, with GDP growth declining from 8.3% in FY17 to 4.2% in FY20.

The FY21 median growth contraction is currently at 5%, indicating a growth collapse of at least 9% from FY20 levels because of COVID. The only saving grace is that our external debt position is sustainable with the external debt to GDP ratio at 19.8% at end-June 2019," it added.

The report said that India should be mindful of its external sector in FY21 as a prolonged period of growth slowdown may hit the external sector metrics, specifically the rupee.

"In FY21, we maintain that India is going to achieve a current account surplus owing to lower oil prices, although the magnitude might shrink if oil prices show undue volatility and stay at over $40 /bbl for a sufficiently longer period of time," the report also said.

Noting that the gross domestic product (GDP) growth has declined from 8.3 per cent in 2016-17 to 4.2 per cent in 2019-20, the report said, the FY21 median growth contraction is currently at 5 per cent, indicating a growth collapse of at least 9 per cent from FY20 levels because of coronavirus.

On coronavirus, the report said that for the first seven days of June, India has tested on an average 1.32 lakh samples, with the number crossing 1.4 lakhs on June 6 and June 7. "This is perhaps the reason why the cases have started increasing at a much faster rate," it said.

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