India's GDP growth likely to contract by 20% in Q1

21 Aug '20

2 min read

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India's gross domestic product (GDP) is expected to contract by 20 per cent during the first quarter of this fiscal because of pandemic-induced disruptions that crippled most economic and commercial activities, according to domestic rating agency Care Ratings, which recently said low tax collections weighed on GDP, dragging down the growth further.

"Notwithstanding the fact that considerable uncertainty prevails regarding the quarterly economic performance, taking cognizance of the adverse impact of lockdown we are pegging the real GDP growth at (-) 20 per cent YoY for Q1 FY21," the rating agency said in a report.

It said gross value added (GVA) is expected to have contracted by nearly 19.9 per cent in the first quarter of this fiscal led by broad based contraction across sectors, barring agriculture and public expenditure. Among the eight sectors under the broad categorisation of GVA, two sectors—agriculture, forestry and fishing and public administration; defence and other services—are expected to register positive growth rates, while others are expected to de-grow in the first quarter, the report pointed out.

It said the industry is likely to witness a steep de-growth of 35.9 per cent year on year in the June quarter. Services sector may contract by 16.8 per cent, but increase in government expenditure will provide modest support, the report said.

Increase in spending on public administration by the government following announcement of stimulus measures is expected to drive growth in the sector in the first quarter, it said.

On demand side, the rating agency said investment scenario has been dwindling with lower capacity utilisation (below 70 per cent). Private sector consumption remained below par as a side effect of lockdown.

Exports have contracted by a considerable 37 per cent in the first quarter due to muted demand in global markets and trade restrictions imposed by certain countries due to the pandemic.

Tax collections were also hit as aggregate goods and services tax collections in the first quarter were 41 per cent lower at ₹1.85 lakh crore as compared with the first quarter in the last fiscal on account of restrictions on movements of goods and muted demand due to lockdown, it added.

Fibre2Fashion News Desk (DS)

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