Virendra Pandit
New Delhi: As Finance Minister Nirmala Sitharaman gives finishing touches to the Union Budget 2020-21, to be tabled in Parliament on February 1, encouraging reports from rating agencies indicated that the worst in the Indian economy may be a thing of the past as the coronavirus-battered nation finds its feet back to race to emerge as the world’s third-largest economy by 2030.
Indian economy is expected to rebound with an 8.9 percent growth in 2021-22 as its economic activity has shown significant improvement in the last quarter ended December 2020, IHS Markit said on Friday.
On Thursday, the National Statistical Organisation (NSO) had predicted that the economy will contract 7.7 percent in the current financial year ending in March 2021, the worst performance in four decades.
In the COVID-19 afflicted the year of 2020, the GDP contracted by a record 23.9 percent in the April-June quarter following a national lockdown to prevent the spread of the killer virus. The contraction came down to 7.5 percent in the September quarter.
“During the fourth quarter of 2020, India’s industrial production and consumption expenditure have shown a rebound.”
October data showed that industrial production grew by 3.6 percent year-on-year compared with a steep contraction of -55.5 percent in April 2020,” IHS said, according to media reports.
A marked improvement was seen in business conditions across the manufacturing sector, it said, adding factory orders increased during December on the back of the loosening of COVID-19 restrictions, strengthening demand, and improved market conditions.
“With the Indian economy already showing a significant improvement in domestic economic activity in the fourth quarter of 2020, the outlook is for Indian GDP growth to rebound by 8.9 percent 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 from Rs. 145.66 lakh crore in FY20 to Rs 134.40 lakh crore in FY21.
From the demand side, except government consumption, all other components, such as private consumption, investment, exports, and imports are estimated to contract in FY21, it said, adding it expects GDP growth to turn positive in Q4FY21 and FY22 GDP to come in at 9.6 percent.
Arun Singh, Global Chief Economist, Dun & Bradstreet, said the first advance estimates of GDP growth for FY21 is somewhat lower than the RBI projection of 7.5 percent contraction but more optimistic than the projections provided by many institutions, global and domestic.
“We expect the final GDP data to be slightly lower than the first advance estimates when the data for the informal economy is included and adjusted,” he said.
While the investment and consumption demand data were expected to register a strong decline, the 5.8 percent growth in government final consumption expenditure, the lowest since FY15, was not quite anticipated, media reported.
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 industry seeing some recovery in the second half, the upcoming Budget will need to extend some support to the services sector, which continues to lag,” he said.