ICRA revises Indian GDP contraction forecast

17 Jul '20

2 min read

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Rating agency ICRA recently revised its forecast for contraction in India’s gross domestic product (GDP) in this fiscal to 9.5 per cent from 5 per cent earlier, as continued lockdowns in some states affected the May-June recovery. The unabated rise in infections in the unlock phase and re-imposition of localised lockdowns in several states appear to have interrupted this recovery, ICRA’s principal economist Aditi Nayar noted.

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

"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 the fourth quarter from the third quarter.

"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 the rural economy to partly counter the slowdown in the urban economy and is optimistic regarding the outlook for agricultural growth and rural consumption. It expects agricultural gross value added to rise by 3.5-4 per cent in this fiscal, 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.

Fibre2Fashion News Desk (DS)

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