ICRA Sees India Real GDP Contract By Almost Double Digits In FY21
A pedestrian with a face covering walks past a store at the Kondli Wholesale Market in Noida, Uttar Pradesh, India. (Photographer: Prashanth Vishwanathan/Bloomberg)

ICRA Sees India Real GDP Contract By Almost Double Digits In FY21

ICRA Ltd. has sharply cut its forecast for the Indian economy in FY21, citing localised lockdowns and rising Covid-19 cases. Its forecast is now the most pessimistic among major institutional forecasters.

The rating agency now expects FY21 real GDP to contract by 9.5%, a sharp downward revision of its earlier forecast of a 5% contraction. The climbing Covid-19 infections have resulted in a spate of localised lockdowns in some states and cities, arresting the nascent recovery that had set in during May-June 2020, it said in a statement on Thursday.

“The Indian economy had started to recover from the troughs experienced in April 2020, when the lockdown was at its severest, and many sectors seemed to be adjusting to a new normal. However, the unabated rise in Covid-19 infections in the unlock phase and re-imposition of localised lockdowns in several states, appear to have interrupted this recovery,” said Aditi Nayar, principal economist at ICRA.

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, ICRA said. The agency said the economic impact would also be more uneven, as different regions move in and out of lockdowns and persisting labour supply mismatches affect supply chains and consumption patterns.

India recorded nearly 32,000 new Covid-19 cases on Thursday with the total number of cases rising to 9.6 lakh.

As a result of the spreading infections, economists, who were earlier anticipating the economic recovery to begin in the second quarter and strengthen in the third quarter, are now revisiting that assumption.

The timeline for a firmer recovery out of the contractionary phase is now being pushed ahead to at least Q4 FY21 from Q3 FY21. 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. 
Aditi Nayar, Principal Economist, ICRA

Also read: Covid-19: Shape Of India’s Economic Recovery Goes From V To W-ish

ICRA expects the Indian economy to have contracted by 25% in Q1 FY2021. It now expects a shallower recovery in subsequent quarters than estimated earlier.

  • GDP is estimated to contract by 12.4% in Q2 FY21 as compared to a contraction of 2.1% estimated earlier.
  • GDP is estimated to contract by 2.3% in Q3 FY21, compared to an earlier estimate of GDP growth at 2.1%.
  • GDP forecast for Q4 FY21 too has been revised to a growth rate of 1.3% from 5% as per ICRA’s previous estimates.

The agency, however, does expect the rural economy to remain a bright spot. High frequency indicators in the rural economy such as kharif acreage and tractor sales continue to strengthen. “ICRA, thus, continues to expect agricultural gross value added to rise by 3.5-4.0% in FY21, supporting rural sentiment,” it said.

Despite the revised GDP forecasts, ICRA said it doesn’t see significant fiscal support due to the revenue pressures being faced by various levels of government.

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