CARE expects GDP to contract 8-8.2% in FY21

CARE Ratings expects India’s GDP for FY21 to contract 8.0-8.2 per cent, against its earlier projection of a 6.4 per cent.

The credit rating agency observed that the GDP de-growth would also be associated with a decline in the gross fixed capital formation. The same would hold for consumption growth that will be affected by lower growth in income across all categories of consumers.

The sharp fall in GDP growth in FY21 would, however, provide the cushion of a faster pace of growth in FY22, depending on the rate at which various sectors get back on track, the agency said.

CARE Ratings, in a report, said the Q1 (April-June) de-growth of close to -24 per cent was slightly higher than its expectations of -20.2 per cent. It emphasised that the element that came in as a surprise was de-growth in the public administration, defence and other services segment at -10.3 per cent.

Positive tendencies

The report said the factors that are working well in the economy are more in the agricultural sector as well as the financial domain, where a good monsoon and the efforts of the government and RBI to enhance the flow of credit, have shown some positive tendencies.

CARE opined that the unlock process has been gradual and it needs to be seen whether there is continuity in the approach that will have a bearing on the resumption of some services and the attainment of minimum capacity utilisation in these sectors.

“An important factor in drawing up any forecast for the year is the assumption of a fiscal stimulus being invoked by the government which goes beyond the allocations in the Budget.

“While there have been some indications, given that there would be another round of reforms, the nature of the same would be important in terms of the impact on the GDP prospects,” the agency said.

For its forecasts, CARE assumed that there will be no fresh round of expenditure outside the Budgetary numbers for this year. Further, as the PMI (Purchasing Managers’ Index) numbers indicate, there would be an improvement on a month-on-month basis though the same would manifest as negative growth numbers on a year-on-year basis.

“It is also believed that the third and fourth quarters would show progressively better results as the unlock process becomes widespread and economic activity moves towards the range of 50-70 per cent of normal by the end of Q4 (January-March 2021),” the report said.