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Technical recession gripping Indian economy expected to end in Q4FY21: ICRA


The technical recession gripping the Indian economy is expected to end in the final quarter of the fiscal with mild positive growth at 1.3%, on the back of a likely improvement in economic fundamentals, revival in exports and higher government spending, according to rating agency ICRA.

The agency also projected the economy to witness a milder contraction of 7.8% in FY21, compared to -11% it had forecast in September, it said in a note on Thursday.

After the National Statistical Office released the official gross domestic product (GDP) print at -7.5% for the second quarter in November, the agency had provided a range for India’s FY21 contraction between 7-9%.

“Healthy procurement and a favourable outlook for the rabi season, as well as greater visibility of an approaching Covid-19 vaccine rollout, will strengthen demand and economic activity in Q4 FY2021. The technical recession is likely to end in that quarter, with a muted 1.3% growth benefitting from a real recovery as well as the low base effect,” said Aditi Nayar, principal economist at ICRA.

For the current quarter, quarter, the agency forecast a marginal 1% contraction as rising raw material and wage costs would partly counteract the positive impact of a modest rise in volumes in the industrial sector.

“While many indicators have displayed growth in the ongoing quarter relative to a weak performance in the same period in FY2020, volumes still remain below FY2019 levels in a number of sectors, highlighting that a full recovery remains somewhat distant,” Nayar said, adding that further confirmation of a broad-basing of demand in sectors such as automobiles and capital goods was still awaited.

Further, supply-side and logistical disruptions re-emerged in some states while the tailwinds of low commodity prices are turning into headwinds, as the visibility of vaccine availability was pushing up global commodity prices, it said.

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