ICRA revises India GDP forecast, expect 9.5 per cent contraction

The domestic rating agency ICRA in its latest report has revised its forecast for the contraction in India’s gross domestic product (GDP) growth to 9.5 per cent in the current fiscal (FY21) from the earlier assessment of 5 per cent.

ICRA cited that the rising COVID-19 infections, resulting in a spate of localised lockdowns in some states and cities, as the main reason for the sharp downward revision. It added that these localised lockdowns are arresting the nascent recovery that had set in during May-June 2020.

The report stated that the country's economy may have contracted by a sharp 25 per cent in the first quarter of FY21, and expects a shallow recovery in the subsequent quarters, with a contraction of 12.4 per cent in the second quarter of FY21 and a milder 2.3 per cent in the third quarter, followed by a growth of 1.3 per cent in the fourth quarter of FY21.

Besides, ICRA stated that 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 the new normal. However, it said the unabated rise in COVID-19 infections in the unlock phase and re-imposition of localised lockdowns in several states appear to have interrupted this recovery.

Meanwhile, the rating agency expects the rural economy to partly counter the slowdown in the urban economy and is optimistic regarding the outlook for agricultural growth and rural consumption. It expects agricultural gross-value added (GVA) to rise by 3.5-4 per cent in FY21, supporting rural sentiments. It has, however, tempered its expectations regarding the extent of fiscal support that may be forthcoming, given the revenue shock, which is already being experienced by various levels of governments.