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Steeper contraction in FY21 GDP expected according to ICRA

Saransh Pandey

  • September 28, 2020
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    The agency revised its projections for GDP to decline 5.4% from 2.3?rlier for the third quarter and 2.5% in the fourth quarter

The forecast for the contraction in the gross domestic product (GDP) for 2020-21 by rating agency ICRA has been revised and it has predicted a contraction of 11% as compared to 9.5% predicted earlier. This revised data has been released after Covid-19 infections continuing to spread in the second quarter of the year. However, the agency has retained its earlier forecast of a 12.4% contraction in GDP in the second quarter. 

According to Nayar, principal economist at ICRA as the pandemic continues to spread in India for over six months, he said that he senses that economies are now adapting to the crisis, resulting in a graduated recovery to a new post-COVID normal. Nayar said there are some positive signs also such as the sharp revival in passenger vehicles and motorcycles, but these demands are the result of increasing demand as well as inventory restocking, which creates some doubts on their sustainability. 

The agency revised its projections for GDP to decline by 5.4% from 2.3 earlier for the third quarter and 2.5% in the fourth quarter. According to Nayar with the continuation of Covid-19 infections, the agency expects behaviors to remain altered for longer than what they had earlier assumed. It is expected that this would continue to affect the activities in some sectors, especially where social distancing is difficult such as travel, tourism, and recreation. 

ICRA expects that the recovery in construction, as well as trade, transport, hotels, communications, and services related to broadcasting to be very late and these sectors, will continue to underperform the rest of the economy. The gross value added (GVA) at basic prices for these sectors is expected to register contraction even in Q4 which will result in the overall GVA and GDP continuing to record a decline in growth in that quarter. 

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