India’s GDP to contract 8% in FY21: FICCI Survey

India's gross domestic product (GDP) is liklely to contract by 8% in 2020-21, according a survey by Federation of Indian Chambers of Commerce & Industry (FICCI). Named as FICCI's Economic Outlook Survey, it is based on responses from leading economists representing industry, banking and financial services sector. The survey was conducted in January.

The median growth forecast for agriculture and allied activities has been pegged at 3.5% for 2020-21. "Agriculture sector has exhibited significant resilience in the face of the pandemic. Higher rabi acreage, good monsoons, higher reservoir levels and strong growth in tractor sales indicate continued buoyancy in the sector," the industry body stated.

The industry and services sector, which were severely hit due to the coronavirus pandemic and nationwide lockdown, are expected to contract by 10% and 9.2% respectively during 2020-21. The industrial recovery is gaining traction, but the growth is still not broad based. The consumption activity did spur during the festive season as a result of pent-up demand built during the lockdown but sustaining it is important going ahead, the survey said.

Some of the contact intensive service sectors like tourism, hospitality, entertainment, education, and health sector are yet to see normalcy. "The quarterly median forecasts indicate GDP growth to contract by 1.3% in the third quarter of 2020-21. The growth is expected to be in the positive terrain by the fourth quarter with a projection of 0.5% growth," estimated the survey.

Further, on the estimates of other macro parameters, the survey participants put the median growth forecast for IIP at (-) 10.7% for the year 2020-21, with a minimum and maximum range of (-) 12.5 per cent and (-) 9.5% respectively. WPI-based inflation rate is projected to be flat in 2020-21. On the other hand, CPI-based inflation has a median forecast of 6.5% for 2020-21, with a minimum and maximum range of 5.8% and 6.6% respectively, the survey revealed. On the fiscal front, a slippage is imminent this year and the median estimate for fiscal deficit to GDP ratio was put at 7.4% for 2020-21 by the participants with a minimum and maximum range of 7% and 8.5% respectively. Fiscal deficit for 2020-21 was budgeted at 3.5%.

However, participants of the survey expect the economy to perform much better and have projected a median GDP growth rate of 9.6 per cent for the financial year 2021-22. The strong rebound in growth will be supported by a favourable base as economic activity normalizes post the sharp pandemic led contraction. The minimum and maximum growth was forecast at 7.5% and 12.5% respectively.

The strong rebound in growth will be supported by a favourable base as economic activity normalizes post the sharp pandemic led contraction. The minimum and maximum growth was forecast at 7.5% and 12.5% respectively. "However, a surge in the number of COVID-19 cases and the appearance of new strains can be a deterrent to the improving growth conditions. It is therefore important that preventive measures continue to be in place," FICCI said. A good vaccine coverage without many cases of adverse reporting will be a pre-requisite for the normalization process, it added.