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India's GDP may contract by 6.4% in FY21: Care Ratings
03 Jul '20
2 min read
Pic: Shutterstock
Care Ratings recently revised India's gross domestic product (GDP) growth forecast for this fiscal to minus 6.4 per cent as economic activity continues to be restricted because of the COVID-19 pandemic. In May, it had projected a decline of 1.5-1.6 per cent in this fiscal. The cut-off date for normalcy will spread into the latter part of the third quarter and more likely to the fourth quarter, it said.
The gross value added (GVA) (de)growth is estimated to be around minus 6.1 per cent for this fiscal, the rating agency said in a report. The sharper fall in real GDP also means that the nominal GDP for the year will also decline assuming inflation of 5 per cent, which in turn, will affect the central government’s projected fiscal deficit that will be in around 8 per cent for fiscal 2020-21, it said.
It, however, said the positive growth will come from only agriculture and the government sector.
The agency's May estimate for a decline in GDP growth of 1.5-1.6 per cent was based on the assumption that the lockdown would be ending by the month-end and that the recovery process will be gradual and be calibrated across sectors with the second half being closer to normal.
The agency said its assumption now is that two-third of the economic sectors would broadly be operating at 50-70 per cent capacity.
Services like hospitality, tourism, entertainment, travel would take a much longer time pan India to resume anywhere close to normal with interstate restrictions being the norm for the next quarter or so, the report said.
"The restriction on movement of people translates into fall in demand for goods and services and further exacerbates the low consumption growth syndrome that pervaded for three years now," it said.
Job losses and pay cuts will add to the stickiness in spending even during the festival time, the agency said adding, "It is assumed that good rural income cannot compensate for this loss of purchasing power which is topped with uncertainty," the report added.
The gross value added (GVA) (de)growth is estimated to be around minus 6.1 per cent for this fiscal, the rating agency said in a report. The sharper fall in real GDP also means that the nominal GDP for the year will also decline assuming inflation of 5 per cent, which in turn, will affect the central government’s projected fiscal deficit that will be in around 8 per cent for fiscal 2020-21, it said.
It, however, said the positive growth will come from only agriculture and the government sector.
The agency's May estimate for a decline in GDP growth of 1.5-1.6 per cent was based on the assumption that the lockdown would be ending by the month-end and that the recovery process will be gradual and be calibrated across sectors with the second half being closer to normal.
The agency said its assumption now is that two-third of the economic sectors would broadly be operating at 50-70 per cent capacity.
Services like hospitality, tourism, entertainment, travel would take a much longer time pan India to resume anywhere close to normal with interstate restrictions being the norm for the next quarter or so, the report said.
"The restriction on movement of people translates into fall in demand for goods and services and further exacerbates the low consumption growth syndrome that pervaded for three years now," it said.
Job losses and pay cuts will add to the stickiness in spending even during the festival time, the agency said adding, "It is assumed that good rural income cannot compensate for this loss of purchasing power which is topped with uncertainty," the report added.
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