Indian economy is probably to rebound with an 8.9 per cent development in the fiscal year starting April 2021 just after financial activity showed important improvement in the final quarter, IHS Markit stated on Friday.
The National Statistical Organisation (NSO) on Thursday predicted that the economy will contract 7.7 per cent in the present economic year ending in March, the worst overall performance in 4 decades.
“The Indian economy suffered a severe recession in 2020,” IHS Markit stated in a note. “The worst contraction occurred during the period from March until August, with the economy having shown a strong rebound in economic activity since September.” The GDP contracted by a record 23.9 per cent in the April-June quarter following a national lockdown to avoid the spread of the coronavirus. The contraction came down to 7.5 per cent in the September quarter.
“During the fourth quarter of 2020, India’s industrial production and consumption expenditure have shown a rebound.
“October information showed that industrial production grew by 3.6 per cent year-on-year compared with a steep contraction of -55.5 per cent in April 2020,” IHS said.
Stating that there has been a marked improvement in business conditions across the manufacturing sector, it said factory orders increased during December on the back of the loosening of COVID-19 restrictions, strengthening demand and improved market conditions.
Although India faces a vast challenge to vaccinate its population of 1.4 billion people, it is about to commence its COVID-19 vaccination programme.
The Health regulator has approved the Oxford/AstraZeneca vaccine for emergency use.
An important advantage for India is that the Oxford/AstraZeneca vaccine is already being manufactured in the country by the Serum Institute of India, which projects that it will be able to manufacture 100 million COVID-19 vaccine doses per month by April 2021.
“With the Indian economy currently displaying a important improvement in domestic financial activity in the fourth quarter of 2020, the outlook is for Indian GDP development to rebound by 8.9 per cent year-on-year in the 2021-22 fiscal year,” IHS said.
India Ratings & Research said the NSO projections for GDP growth in FY21 mean that the size of the Indian economy is expected to shrink to Rs 134.40 lakh crore in FY21 as against Rs 145.66 lakh crore in FY20.
“From the demand side except government consumption all other elements namely private consumption, investment, exports and imports are estimated to contract in FY21,” it said.
Although the headwinds emanating from the COVID-19-related challenges are unlikely to go away till mass vaccination becomes a reality, the rating agency said it expects GDP growth to turn positive in 4QFY21 (January-March) and FY22 GDP to come in at 9.6 per cent.
Arun Singh, Global Chief Economist, Dun & Bradstreet said the first advance estimates of GDP growth for FY21 is a tad lower than the RBI projection of 7.5 per cent contraction but more optimistic than the projections provided by many institutions, global and domestic.
“We anticipate the final GDP information to be slightly reduce than the initially advance estimates when the information for the informal economy is incorporated and adjusted,” he said.
While the investment and consumption demand data were expected to register a strong decline, the 5.8 per cent growth in government final consumption expenditure, the lowest since FY15, was not quite anticipated.
“During uncertain instances, only the government can propel the multiplier impact in the economy. Hope hinges on the government to improve its spending to revive the private sector sentiment, general demand and largely private investment,” Singh said. “Thus, in spite of, the stimulus measure announced by the government through the course of the year, expectation of more measures from the Union Budget remains higher.” Dharmakirti Joshi, Chief Economist, Crisil said only two sectors are above last year’s level — agriculture and electricity, gas and water supply — and as expected, services are the worst hit.
“With market seeing some recovery in the second half, the upcoming Budget will will need to extend some help to the services sector, which continues to lag,” he stated.