Ind-Ra revises projection for economic contraction to 7.8% for FY21

India Ratings has revised its projections for economic contraction to 7.8 per cent for 2020-21 from the earlier expectation of 11.8 per cent due to easing Covid-19 headwinds and better than expected numbers in the second quarter of the current financial year. The rating and research agency expected FY22 growth to be 9.6 per cent, mainly due to the weak base of FY21.
 

It said that while the headwinds emanating from Covid-related challenges are unlikely to go away till mass vaccination becomes a reality, the economic agents and economic activities have not only learnt to live with it, but are also adjusting swiftly to the post Covid world.
 

Ind-Ra projections are close to the RBI's expectation of 7.5 per cent GDP growth rate in the current financial year.
 

The economy contracted an unprecedented 23.9 per cent in the first quarter of FY21. However, the contraction dropped to 7.5 per cent in the second quarter, much lower than what was expected by most experts.

Ind-Ra now expects GDP to contract  0.8 per cent in the third quarter and grow by 0.3 per cent in the fourth quarter of FY21 against its earlier projection of the economy to start growing in the fourth quarter of the next financial year.
 

It expects the Centre's fiscal deficit to touch 7 per cent of GDP in the current financial year against the budget sstimates of 3.5 per cent. The deficit had already breached the budget estimates in absolute terms by 19.7 per cent by October istelf.
 

"The major reason for breaching the fiscal deficit target for the whole year by October is a sharp decline in receipts. The total receipts by end-October 2020 were 31.5 per cent of the budget estimates, whereas expenditure was 54.6 per cent of FY21 BE," India Ratings' Principal Economist Sunil Kumar Sinha said.
 

The agency pegged retail and wholesale price inflation rate to average 6.8 per cent and negative 0.3 per cent in FY21.
 

"Ind-Ra believes this will provide very little headroom to the Reserve Bank of India in the near term to make any changes in the policy rates, and it may continue with the accommodative policy stance. As a result, 10-year G-sec bond yield is expected to trade in the range of 6.0-6.1 per cent by end of the current financial year," Sinha said.