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Experts Estimate Indian Economy Contraction of 14-21% in Q1 of FY21

COVID -hit economy to take longer to recover. Experts estimate the Indian economy may have contracted by 14-21% in Q1 of FY 21.

Estimates of Contraction in the First Quarter

Several economists warned that the recovery of the Indian economy might take a while as cases continue to rise. They also estimated a contraction of 13.6% to 25.7% in the first quarter of FY20-21. The Indian economy already struggled for growth before the pandemic as it grew by only 3.1% in the quarter ended March 31. Besides, they said that the contraction would be historic and, hence the government needs to take control of the measures. 

Soumya Kanti Ghosh, chief economic adviser, State Bank of India, said that country needs a structured approach to ‘on and off ‘of the lockdowns. He estimated a contraction of 16.5% in the June quarter which is an improvement of the previous predictions of more than 20%. That apart, Radhika Rao, India economist at DBS Bank estimated 16.6% contraction in the first quarter. 

National Council of Applied Economic Research pegged at the steepest decline of 25.7% in the first quarter while India ratings saw 13.6% contraction, the least of all. Sonal Varma, Nomura’s chief economist for India and Asia, estimated a decrease of 15.2 %.

Mentioning the recovery rate of 71%, SBI economists pointed to an increase in the percentage of cases in rural districts to total new cases to 54%. They also estimated GSDP (the sum of all value added by industries within each state or UT) loss due to COVID at 16.8%. Moreover, Maharashtra contributed the highest to the total GDP loss.

Positive Outlook on Agricultural growth

Experts seem optimistic about agricultural growth due to government transfers, good monsoons, and large procurement of food grains. However, Industrial production and manufacturing have declined by 35.9% and 40.7% respectively from a year ago.

On the other hand, GST collections, e-way bills, power consumption, and PMI’s have shown moderation, although less from year-ago levels. Economists warned that the expenditure would remain stressed as there are no jobs and the virus continues to penetrate. 

More Stimulus Needed

Vivek Kumar, senior economist, Yes Bank expects 18.5% contraction in first-quarter. He added that the deep contraction is a reflection of the nationwide lockdown. Barclays’ chief India economist Rahul Bajoria suggested tax cuts for the lower two slabs. Besides, reduction in GST even on sin commodities will help to accelerate demand. 

In all, the Indian economy needs more growth measures to sustain economic recovery.

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