Rating agency ICRA on Thursday sharply revised its forecast for the contraction in the Indian economy to 9.5% in the 2020-’21 financial year from its earlier estimate of 5%. The rating agency cited rising coronavirus cases and the localised lockdown to rein in the pandemic for the downward revision.
“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,” said Aditi Nayar, principal economist at ICRA. “However, the unabated rise in Covid-19 infections in the unlock phase and localised re-imposition of lockdowns in several states, have interrupted this recovery in recent weeks.”
ICRA added that the severity of the coronavirus pandemic and the safety measures employed was likely to impact the gross domestic product contraction. “We also anticipate more unevenness, as different regions move in and out of lockdowns, and persisting labour supply mismatches affect supply chains and consumption patterns,” Nayar said.
India’s coronavirus cases crossed the 10-lakh mark on Friday with 34,956 new infections and 687 deaths. This is, so far, the biggest single-day increase in the number of cases and casualties.
The agency said the pandemic will likely result in deeper contractions in the second and third quarter of the fiscal and a longer recovery timeline. “The timeline for a firmer recovery out of the contractionary phase is now being pushed ahead to at least Q4 FY 2021 from Q3 FY 2021,” it added. “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.”
ICRA, however, expect the rural economy to partly counter the slowdown in the urban economy. “The monsoon rainfall recorded a timely onset, and the rains covered the entire country well ahead of the normal date,” it said. “Benefitting from favourable moisture conditions, seasonally high reservoir levels, and returnee labourers at least in some parts of the country, kharif sowing was 44.1% higher than the year-ago level, as on July 10, 2020, and more than half of the 2019 kharif acreage had been covered. “We continue to expect agricultural GVA [gross value added] to rise by 3.5-4.0% in FY 21.”
The agency expects the Indian economy to contract 25%.
The output in the eight core industries suffered an overall contraction for a third straight month in May, shrinking 23.4%, as the pandemic-induced lockdown kept large parts of the economy shut, government data released on June 30 showed.
The finance ministry, in a report released on July 6, said that India’s gross domestic product is expected to contract 4.5% in the 2020-’21 financial year as predicted by the International Monetary Fund. The ministry had cited “unprecedented Covid-19 induced supply-demand shocks” for the downward revision of the economic growth.