The worst is yet to come for India’s slowing economy

India’s economy kicked off 2020 with its weakest quarter in at least eight years. But the biggest drop is yet to come.

GDP expanded by 3.1% in the three months to March, according to government data published Friday. That was a faster pace than economists had expected, but still the weakest figure since comparable record keeping began in 2012.

India’s economy had been slowing down well before the coronavirus pandemic hit, with the rate of expansion slumping to about half of what it was three years ago as consumer demand waned and the country’s automotive sector struggled.

Vendors wait for customers in front of their clothing shops in a market area after the government eased restrictions imposed as a preventive measure against the spread of the COVID-19 coronavirus in New Delhi on May 20, 2020. (Photo by Jewel SAMAD / AFP) (Photo by JEWEL SAMAD/AFP via Getty Images)

Related article India's economy will shrink this year for the first time since 1979

But more pain is on the way for Asia’s third-biggest economy. The data for the first three months of the year doesn’t fully capture the impact of a nationwide lockdown imposed in late March as authorities sought to stem the spread of the coronavirus pandemic.

The lockdown has led to significant decline in activity, according to Shilan Shah, senior India economist at Capital Economics. He said in a research note published before the GDP data was released that “almost every economic indicator” has experienced the “sharpest drop on record.” Capital Economics had forecast a 1.5% contraction for the quarter.

“The slump in most of these indicators have deepened in April,” Shah added, referring to important signs of economic activity in India like tourist arrivals, railway passengers and vehicle production. He said that although restrictions are easing this month — airports just started reopening earlier this week, for example — a sharper contraction in the current quarter is likely.

Friday’s announcement comes a week after Reserve Bank of India chief Shaktikanta Das warned that GDP would fall for the fiscal year of 2020-2021, which ends next March. The last time India’s economy shrank over the course of a year was in 1979.

Das made the projection while announcing a slew of new measures to prop up the ailing economy.

He announced that the central bank would slash its lending rate from 4.4% to 4%. The bank also extended a three-month debt moratorium it had offered to small and medium-sized businesses by another 90 days.

Das did not rule out the possibility of introducing other measures as the pandemic evolves.

Prime Minister Narendra Modi has also said the government was committing $266 billion to support the economy, including steps to improve liquidity for businesses and an earlier $23 billion stimulus package meant to help the country’s poor.

– Rishabh Madhavendra Pratap and Michelle Toh contributed to this report.