Recovery interrupted by localized lockdown
ICRA has sharply revised its forecast for the contraction in Indian GDP in FY2021 (at constant 2011-12 prices), to 9.5% from its earlier assessment of 5.0%, with the climbing Covid-19 infections resulting in a spate of localised lockdowns in some states and cities, arresting the nascent recovery that had set in during May-June 2020.
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, warned Aditi Nayar, Principal Economist, ICRA.
“Given the severity of the pandemic and the duration of the safety measures that need to be employed, we now expect a deeper pace of GDP contraction in Q2 FY2021 relative to our earlier forecast,” said Nayar.
“We also anticipate more unevenness, as different regions move in and out of lockdowns, and persisting labour supply mismatches affecting supply chains and consumption patterns.”
“The timeline for a firmer recovery out of the contractionary phase is now being pushed ahead to at least Q4 FY2021 from Q3 FY2021. 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,” Nayar pointed out.
However, on the positive side, ICRA expects the rural economy to partly counter the slowdown in the urban economy. ICRA remains optimistic regarding the outlook for agricultural growth and rural consumption.
ICRA expects the Indian economy to have contracted by a sharp 25.0% in Q1 FY2021. Given the aforesaid concerns, the rating agency now expects a shallower recovery in the subsequent quarters, with a contraction of 12.4% in Q2 FY2021 (previous exp.: -2.1%) and a milder 2.3% in Q3 FY2021 (previous exp.: +2.1%), followed by an anaemic growth of 1.3% in Q4 FY2021 (previous exp.: +5.0%). #economy #pandemic #COVID-19 #economy #banks #finance #investment /fiinews.com
