India GDP likely to see sharper contraction of 8-8.2 per cent in FY21: CARE Ratings

CARE Ratings has stated that India’s gross domestic product (GDP) may see a sharper contraction of 8-8.2 per cent in the current financial year (FY21) under the assumption of no fiscal stimulus from the government.

The domestic rating agency said that this implies that there would be no increase in the capital expenditure (Capex) during the year beyond what is already mentioned in the Budget. Earlier, it had a projection of 6.4 per cent de-growth in GDP for FY21, based on the expected progress of the lockdown and unlock processes, which were prevalent in the country at that time.

According to the report, the decline in GDP growth by around 8 per cent would also be associated with a decline in the gross fixed capital formation. It said the same would hold for consumption growth that will be affected by lower growth in income across all categories of consumers. However, it said the sharp fall in GDP growth in FY21 would provide a cushion of a faster pace of growth in FY22 depending on the rate at which various sectors get back on track. It noted that the GDP fall of about 24 per cent in the first quarter was slightly higher than its expectations of a 20.2 per cent contraction. The element, which came in as a surprise, was the growth of public administration, defence, and other services segments at (-) 10.3 per cent.

The rating agency further added that the factors that are working well in the economy are more in the agricultural sector along with the financial domain, where good monsoon as well as the efforts of the government and RBI to enhance the flow of credit, have shown some positive tendencies. It also said that the unlock process has been gradual, and it needs to be seen whether there is a continuity in the approach, which will have a bearing on the resumption of some services and the attainment of minimum capacity utilisation in these sectors.