Ind-Ra downwardly revises India's FY21 GDP to minus 11.8%

The negative 23.9 per cent growth in Q1 FY21 is the first contraction in quarterly GDP data series which have been made available in the public domain since Q1 FY98. The economic loss in FY21 is estimated to be ₹18.44 trillion. However, GDP is expected to rebound and grow at 9.9 per cent year-on-year in FY22 mainly due to the weak base of FY21, Ind-Ra said in a press release.

All indicators, be it mobility or consumption, are pointing towards a much weaker economic recovery. Out of 35 states/union territories (UTs), workplace mobility improved only in 16 states/UTs between end-May and end-August 2020. "Ind-Ra believes the workplace mobility would remain low even in the next few months and would not return to normal till a vaccine is found," the release said.

While a second wave of infections is being witnessed globally, India still has not been able to flatten the first wave of infection curve. On September 6, 2020, India added 91,723, the maximum single day infections, in the world. Ind-Ra’s FY21 GDP growth forecast of negative 11.8 per cent will be the lowest GDP growth in the Indian history (GDP data is available from FY51) and sixth instance of economic contraction, others being in FY58, FY66, FY67, FY73 and FY80. The previous lowest was negative 5.2 per cent in FY80.

The economic disruption caused by COVID-19 has had a telling impact, not only on the economy but also on jobs and livelihoods. However, it has been more pronounced in the unorganised sector, leading to huge reverse migration. Although there is some evidence of migrant workers returning to urban areas, the process is likely to be slow. Private final consumption expenditure growth therefore is now estimated to clock negative 12.8 per cent, down from the earlier estimate of negative 5.1 per cent.

The gross fixed capital formation is now estimated to grow at negative 27.3 per cent in FY21 compared to Ind-Ra's earlier estimate of negative 17.6 per cent. Ind-Ra believes factors such as a) excess capacity, b) weak domestic/global demand, c) stretched/leveraged balance sheet of Indian corporates and, d) budget constraints will now push the investment demand revival beyond FY22.

The only bright spot from supply side is agriculture, as both industry and services activities have been severally impacted, Ind-Ra said.

In the wake of both weak global and domestic demand conditions, Ind-Ra expects India’s current account to record a surplus of $8.4 billion (0.3 per cent of GDP) in FY21 (FY20: deficit of $24.7 billion, negative 0.9 per cent of GDP). Merchandise exports is expected to decline 12.5 per cent in FY21 (FY20: negative 4.9 per cent), as all major export commodities would clock negative growth. Similarly, merchandise imports are expected to decline 22.6 per cent y-o-y in FY21 (FY20: negative 8.9 per cent). Although capital inflows are estimated to decline to $67.3 billion in FY21 from $83.2 billion in FY20, due to the current account recording a surplus, it is expected to push the forex reserve up by $75.7 billion in FY21, Ind-Ra added.

Fibre2Fashion News Desk (RKS)