Ind-Ra revises FY21 GDP contraction to 7.8% on easing pandemic headwinds

Accordingly, it expects 7.8% contraction in 2020-21 as against (-) 11.8% earlier, and GDP to grow by 9.6% in 2021-22, mainly due to the weak base of 2020-21, India Ratings chief economist Devendra Pant said in a report.
The better-than-expected Q2 numbers came in from manufacturing/electricity and other utilities with positive growth numbers, while mining and construction saw significant reduction in contraction.(AP)
The better-than-expected Q2 numbers came in from manufacturing/electricity and other utilities with positive growth numbers, while mining and construction saw significant reduction in contraction.(AP)
Published on Dec 24, 2020 03:03 PM IST
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Mumbai | By Press Trust of India | Posted by Nilavro Ghosh

Citing the better-than-expected recovery in second quarter and the faster than anticipated easing of the pandemic headwinds, India Ratings on Thursday projected 7.8% contraction for the economy for 2020-21 as compared to 11.8 per cent degrowth estimated earlier.

But the agency was quick to question the sustainability of the recovery seen in September quarter when the Indian economy contracted only 7.5%, after 23.9% contraction in April-June , saying ‘‘a significant part of the impetus came from the festival and pent-up demand. “Although the headwinds emanating from the pandemic-related challenges are unlikely to go away till mass vaccination becomes a reality, the economic agents and economic activities not only have learnt to live with it but are also adjusting swiftly to the new reality,” it said.

Given this, Ind-Ra now expects third quarter to see contraction at 0.8% and fourth quarter to print in 0.3% growth as against the earlier expectation of positive numbers only in July-September 2021-22.

Accordingly, it expects 7.8% contraction in 2020-21 as against (-) 11.8% earlier, and GDP to grow by 9.6% in 2021-22, mainly due to the weak base of 2020-21, India Ratings chief economist Devendra Pant said in a report.

The better-than-expected Q2 numbers came in from manufacturing/electricity and other utilities with positive growth numbers, while mining and construction saw significant reduction in contraction.

But the same is not true for the contact-intensive services sectors like trade, hotel, realty, and tourism and they are likely to remain subdued for some more time due to social distancing norms and risk aversion, the agency said.

Agriculture has been a bright spot even through the lockdown and continues to be so, riding on the back of good monsoons. The agency expects 3.5% growth for agriculture and contraction of 10.3% and 9.8% for industry and services , respectively, in 2020-21.

According to the agency, while government expenditure is expected to clip in at just 3.3% due to significant expenditure cuts, exports could fall 7.9% due to a combination of the ongoing trade conflicts and the pandemic increasing the uncertainty in the global economy.

Government expenditure declined 22.2% and gross value-added of public administration and defence declined 12.2% in the second quarter.

It expects the retail and wholesale inflation to average 6.8% and (-)0.3% respectively in 2020-21 providing very little headroom to the Reserve Bank to make any changes in the policy rates.

Inflation has been hovering at 5%-5.8% since May indicating cost-push pressures.

FY21 fiscal deficit, budgeted at 3.5%, was at 119.7% of the budget estimate in October primarily because of the sharp decline in receipts, which by October were 31.5% of the estimate, whereas expenditure was 54.6%.

The agency expects the fiscal deficit of the Centre to print in at 7% of GDP in FY21 while the current account to be in surplus at 1.1% of GDP and even the capital account is expected to record a surplus of $67.3 billion.

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Friday, October 22, 2021