Indian economy expects to record negative 4.5% growth rate in FY21 - GulfToday

Indian economy expects to record negative 4.5% growth rate in FY21


Labourers sit on stacks of wood timber on a tractor in Amritsar, India on Sunday. Agence France-Presse

With economic activities coming to a halt amid the Covid-19 pandemic and the lockdown, the Indian economy is expected to record a negative 4.5 per cent growth rate in the current financial year (FY21), according to the FICCI’s Economic Outlook Survey.

The minimum and maximum growth estimate stood at (-) 6.4 per cent and 1.5 per cent, respectively, for FY21, it said.

The quarterly median forecasts indicated 14.2 per cent contraction in the gross domestic product (GDP) in the first quarter of FY21, it added.

The signs of an impending slowdown have been sharply accentuated by the Covid-19 pandemic-induced lockdown. The Covid-19 pandemic has severely hit global as well as domestic growth.

The current round of survey, conducted in June, drew responses from leading economists representing industry, banking and financial services sectors.

Economic activity-wise annual forecast indicated a median growth of 2.7 per cent for agriculture and allied activities for FY21. Agriculture seems to be the only sector with a silver lining.

There’s an apparent upside as far as performance of monsoon was concerned this year with enough water in reservoirs, it said.

The rural sector, supported by a steady agriculture performance and hopefully a limited number of Covid-19 cases, will be a key demand generator this year, as per the survey.

Further, the direct income support through the PM-KISAN and increased allocation to MGNREGA were helping the returnee migrants, lending support to the rural economy, it showed.

The industry and services sectors are expected to contract by 11.4 per cent and 2.8 per cent, respectively. “Weak demand and subdued capacity utilisation were manifesting into a drag on investment, and the pandemic has further extended the timeline for recovery,” it said.

Even though activity in some sectors, like consumer durables and FMCG (fast-moving consumer goods), is gaining traction, most companies are still operating at low capacity utilisation rates. Labour availability and feeble demand remain major issues.

Therefore, fresh investments would be difficult to come by in the near-to-medium term, the survey predicted.

Absence of demand stimulus, a second wave of the pandemic and continuation of social distancing and quarantine measures would weigh heavily on growth prospects, it said.

“With demand and investment outlook muted, robust government expenditure has been the only saviour. Nonetheless, growth is likely to bottom out after the second quarter of FY21,” FICCI survey said.

Meanwhile the medium-term outlook for the Indian economy remains uncertain with supply chains and demand yet to be restored fully while the trajectory of the coronavirus spread and the length of its impact remain unknown, Reserve Bank of India Governor Shaktikanta Das said on Saturday.

According to most estimates, the Indian economy will register a record contraction of over 4.5% in the current fiscal year that started on April 1 due to the pandemic.

Starting late March, the country was placed under one of the strictest lockdowns in the world for over two months. Since early June, the government has started easing restrictions to help some revival in the economy even though the number of infections in the country continues to rise.

“The Indian economy has started showing signs of getting back to normalcy in response to the staggered easing of restrictions,” Das said in an address to an online forum.

“It is, however, still uncertain when supply chains will be restored fully. How long will it take for demand conditions to normalise and what kind of durable effects will the pandemic leave behind on our potential growth?” he said.

Das said that the 2008 global crisis and the current crisis show that such economic shocks have “fatter tails” than generally believed, and that the country’s financial system should have larger capital buffers.

A recapitalisation plan for Indian banks is necessary as the economic impact of the pandemic may result in higher bad loans and erosion of capital for banks, the RBI governor added.

The central bank has cut policy rates by 115 basis points in response to the pandemic, resulting in a total policy rate reduction of 250 basis points since February 2019, along with providing liquidity of 9.57 trillion rupees ($127.28 billion).

It has also eased some bad loan provisioning norms and allowed loan moratoriums for retail customers.

Das said that the central bank has to carefully unwind the unusual monetary and regulatory measures taken to cushion the economic shocks in the post pandemic world, as the financial sector should return to normal functioning without relying on the regulatory relaxations as the new norm.

India recorded 27,114 coronavirus cases in the last 24 hours, taking the total to 820,915 including 22,123 dead.


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