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Icra sees India's GDP contracting 9.5 pc in FY21

The coronavirus pandemic may have caused structural changes in India's economy (REUTERS)Premium
The coronavirus pandemic may have caused structural changes in India's economy (REUTERS)

  • ICRA has strictly revised India's GDP contraction from 5% to 9.5% in this fiscal pertaining to the regional lock-down that are taking place in several states and cities of the country
  • Insufficient supply of labours dismantling supply chains can also be a causal effect for the economic contraction, claims ICRA

MUMBAI : Domestic rating agency Icra has revised its forecast for contraction in the country's GDP in the current fiscal to 9.5 per cent from 5 per cent earlier, as continued lockdowns in some states have affected the recovery seen in May and June.

Most of the analysts have projected the country's GDP to contract in the range of 5-6.5 per cent in this fiscal.

"We have sharply revised our forecast for the contraction in Indian GDP in FY2021 (at constant 2011-12 prices), to 9.5 per cent from our earlier assessment of 5 per cent, with the climbing COVID-19 infections resulting in a spate of localised lockdowns in some states and cities, arresting the nascent recovery that had set in during May-June 2020," the rating agency said in a report.

It said the country's economy may have contracted by a sharp 25 per cent in the first quarter of FY21, and expects a shallow recovery in the subsequent quarters, with a contraction of 12.4 per cent in the second quarter of FY21 and a milder 2.3 per cent in the third quarter, followed by a growth of 1.3 per cent in the fourth quarter of FY21.

Icra's principal economist Aditi Nayar said the Indian economy had started to recover from the troughs experienced in April 2020, when the lockdown was at its severest, and many sectors seemed to be adjusting to the new normal.

However, the unabated rise in COVID-19 infections in the unlock phase and re-imposition of localised lockdowns in several states appear to have interrupted this recovery, she said.

"Given the severity of the pandemic and the duration of the safety measures that need to be employed, we now expect a deeper pace of GDP contraction in Q2 FY21 relative to our earlier forecast," Nayar said.

"We anticipate more unevenness, as different regions move in and out of lockdowns, and persisting labour supply mismatches affecting supply chains and consumption patterns," she added.

According to Nayar, the timeline for a firmer recovery out of the contractionary phase is now being pushed ahead to at least fourth quarter of FY21 from third quarter of FY21.

"This presumes that a vaccine will be widely available by then, which now appears necessary for discretionary consumption to recover in certain sectors such as travel, hospitality and recreation," she added.

The rating agency, however, expects rural economy to partly counter the slowdown in urban economy, and is optimistic regarding the outlook for agricultural growth and rural consumption.

It expects agricultural GVA to rise by 3.5-4 per cent in FY21, supporting rural sentiments.

Icra has, however, tempered its expectations regarding the extent of fiscal support that may be forthcoming, given the revenue shock being experienced by various levels of governments, it said.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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