CARE Ratings Projects Sharper GDP Contraction of 8-8.2 per cent for FY21

Domestic rating agency CARE Ratings said the country's economy is likely to see a sharper contraction of 8-8.2 per cent in the current financial year compared to a decline of 6.4 per cent it had projected earlier. "We have further revised downwards our GDP forecast for the year to a range of (-) 8-8.2 per cent under the assumption of there being no fiscal stimulus from the government," the rating agency's Chief Economist Madan Sabnavis said.

This would imply that there would be no increase in capital expenditure (capex) during the year beyond what is provided in the Budget, he said. The decline in GDP growth by around 8 per cent would also be associated with a decline in the gross fixed capital formation, the agency said.

The same would hold for consumption growth that will be affected by lower growth in income across all categories of consumers. "The sharp fall in GDP growth in FY21 would however provide the cushion of a faster pace of growth in FY22 depending on the rate at which various sectors get back on track," it said.

The rating agency had a projection of 6.4 per cent de-growth in GDP for FY21. It was based on the expected progress of the lockdown and unlock processes which were prevalent in the country at that time, the agency said. It further said the GDP fall of about 24 per cent in the first quarter was slightly higher than its expectations of a 20.2 per cent contraction. The element which came in as a surprise was the growth in the public administration, defence and other services segments at (-) 10.3 per cent, it said.

The factors that are working well in the economy are more in the agricultural sector as well as the financial domain where a good monsoon as well as the efforts of the government and the RBI to enhance the flow of credit have shown some positive tendencies, the rating agency said. The unlock process has been gradual, and it needs to be seen whether there is continuity in the approach which will have a bearing on the resumption of some services and the attainment of minimum capacity utilisation in these sectors, it added.