India’s GDP to contract 8 pc in FY21: FICCI Survey

India”s gross domestic product (GDP) is expected to contract by 8 per cent in 2020-21, according to the latest round of FICCI”s Economic Outlook Survey.

The annual median growth forecast by the industry body is based on responses from leading economists representing industry, banking and financial services sector. The survey was conducted in January. The median growth forecast for agriculture and allied activities has been pegged at 3.5 per cent for 2020-21.

   

“Agriculture sector has exhibited significant resilience in the face of the pandemic. Higher rabi acreage, good monsoons, higher reservoir levels and strong growth in tractor sales indicate continued buoyancy in the sector,” Ficci stated on the survey findings. However, industry and services sector, which were most severely hit due to the pandemic induced economic fallout, are expected to contract by 10 per cent and 9.2 per cent respectively during 2020-21. The industrial recovery is gaining traction, but the growth is still not broad based. The consumption activity did spur during the festive season as a result of pent-up demand built during the lockdown but sustaining it is important going ahead, the survey said. Besides, it observed that some of the contact intensive service sectors like tourism, hospitality, entertainment, education, and health sector are yet to see normalcy.

“The quarterly median forecasts indicate GDP growth to contract by 1.3 per cent in the third quarter of 2020-21. The growth is expected to be in the positive terrain by the fourth quarter with a projection of 0.5 per cent growth,” estimates the survey. Further, on the estimates of other macro parameters, the survey participants put the median growth forecast for IIP at (-) 10.7 per cent for the year 2020-21, with a minimum and maximum range of (-) 12.5 per cent and (-) 9.5 per cent respectively. WPI-based inflation rate is projected to be flat in 2020-21.

On the other hand, CPI-based inflation has a median forecast of 6.5 per cent for 2020-21, with a minimum and maximum range of 5.8 per cent and 6.6 per cent respectively, the survey revealed. On the fiscal front, a slippage is imminent this year and the median estimate for fiscal deficit to GDP ratio was put at 7.4 per cent for 2020-21 by the participants with a minimum and maximum range of 7 per cent and 8.5 per cent respectively. Fiscal deficit for 2020-21 was budgeted at 3.5 per cent. However, participants of the survey expect the economy to perform much better and have projected a median GDP growth rate of 9.6 per cent for the financial year 2021-22. The strong rebound in growth will be supported by a favourable base as economic activity normalizes post the sharp pandemic led contraction. The minimum and maximum growth was forecast at 7.5 per cent and 12.5 per cent respectively. “However, a surge in the number of COVID-19 cases and the appearance of new strains can be a deterrent to the improving growth conditions. It is therefore important that preventive measures continue to be in place,” Ficci said.

A good vaccine coverage without many cases of adverse reporting will be a pre-requisite for the normalization process, it added. However, economists participating in the survey were deeply concerned about the global liquidity situation which, at present, is significantly in surplus and is finding ways to enter asset markets. The participants called upon global central banks to remain watchful of the situation and not allow overheating of markets. Moreover, despite optimism on the growth front, economists cited persistent risks to unemployment and therefore felt the need for continuous monitoring on that front.

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