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Business News/ News / India/  India Ratings revises FY21 GDP contraction from 11.8% to 7.8%
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India Ratings revises FY21 GDP contraction from 11.8% to 7.8%

Ind-Ra expects the third quarter to see contraction at 0.8% and the fourth quarter to print in 0.3% growth

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Photo: Mint

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

But the agency was quick to question the sustainability of the recovery seen in Q2 when the economy contracted only 7.5%, after a 23.9% contraction in Q1, saying “a significant part of the impetus came from the festival and pent-up demand".

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Although the headwinds emanating from the pandemic are unlikely to go away till mass vaccination becomes a reality, economic agents and economic activities not only have learnt to live with it but are also adjusting swiftly to the new reality, Ind-Ra said.

Given this, Ind-Ra now expects Q3 to see contraction at 0.8% and Q4 to print in 0.3% growth as against the earlier expectation of positive numbers only in Q2 FY22.

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 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.

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Published: 25 Dec 2020, 08:31 AM IST
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