India's GDP may contract by 6.4 pc in FY21: Care Ratings

Mumbai (Maharashtra) [India], July 2 : Care Ratings on Thursday revised India's GDP growth forecast for the current financial year to minus 6.4 per cent as economic activity continues to be impacted by the Covid-19 induced countrywide lockdown.
In May, the rating agency had projected a decline in GDP growth of 1.5 to 1.6 per cent in FY21 on the assumption that the lockdown will be ending by the month-end with gradual recovery calibrated across sectors with the second half being closer to normal.
However, given that the nation is into a lockdown for July too with several restrictions on the resumption of services in particular as well as the movement of people, the cutoff date for normalcy will spread into the latter part of the third quarter and more likely to the fourth quarter.
"Under these assumptions, our forecast for GDP growth is now minus 6.4 per cent for FY21 with gross value added (GVA) degrowth estimated to be around minus 6.1 per cent," said Care Ratings in a report.
The sharper fall in real GDP also means that the nominal GDP for the year will also decline assuming inflation of 5 per cent which in turn will affect the projected fiscal deficit number of the central government which will be in the region of 8 per cent for FY21.
Care, however, said the positive growth will come from only agriculture and the government sector.
GDP forecasts for FY21 are unique as they will be varying depending on the evolving situation and the assumptions being made on the recovery process in the country, the report said.
"Our assumption now is that two-thirds of the economic sectors will broadly be operating at 50 to 70 per cent capacity by end Q3 and the balance may not even reach this state this year."
In particular services like hospitality, tourism, entertainment and travel will take a much longer time pan-India to resume anywhere close to normal with inter-state restrictions being the norm for the next quarter or so.
"The restriction on movement of people translates into fall in demand for goods and services and further exacerbates the low-consumption growth syndrome that pervaded for three years now," it said.
Job losses and pay cuts will add to the stickiness in spending even during the festival time, the agency said adding, "It is assumed that good rural income cannot compensate for this loss of purchasing power which is topped with uncertainty."