FICCI Economic Outlook Survey puts projected growth for FY21 at (-) 4.5%

• There were already signs of an impending slowdown in the economy, which have been sharply accentuated by the COVID-19 pandemic induced lockdown, it noted

• Agriculture seems to be the only sector with a silver lining right now, the report said

New Delhi: The latest round of FICCI's Economic Outlook Survey has put forth an annual median GDP growth forecast for 2020-21 at (-) 4.5 percent. The minimum and maximum growth estimate stood at (-) 6.4 percent and 1.5 percent, respectively for 2020-21, FICCI said in an official statement on Monday. The quarterly median forecasts indicate GDP to contract by (-) 14.2 percent in the first quarter of 2020-21. The official growth numbers for the first quarter are expected to be released by the end of August.

"There were already signs of an impending slowdown in the economy, which have been sharply accentuated by the COVID-19 pandemic induced lockdown. The spread of COVID-19 pandemic has severely hit global as well as domestic growth," said the statement.

Agriculture only sector with a silver lining: FICCI

Economic activity-wise annual forecast indicated a median growth of 2.7 percent for agriculture and allied activities for 2020-21. Agriculture seems to be the only sector with a silver lining right now.  There is an apparent upside as far as the performance of the monsoon is concerned this year and the water reservoir levels in the country stand at good levels, said the statement. The current round of the survey was conducted in the month of June 2020 and drew responses from leading economists representing industry, banking, and financial services sector.

The rural sector supported by a steady agriculture performance and hopefully a contained number of COVID-19 cases will be a key demand generator for India this year. Further, the direct income support through PM-KISAN and increased allocation to MGNREGA is helping the returnee migrants — lending support to the rural economy.

Industry and services to contract by 11.4%

Industry and services sector, on the other hand, are expected to contract by 11.4 percent and 2.8 percent, respectively, in 2020-21. Weak demand and subdued capacity utilisation rates were already manifesting into a drag on investments and the Covid-19 pandemic has further extended the timeline for recovery.

Even though activity in sectors like consumer durables, FMCG etc, is gaining traction, majority of the companies are still operating at low capacity utilisation rates. Labour availability and feeble demand remain as major issues for the companies.

Therefore, fresh investments will be difficult to come by in the near to medium term. Also, a significant change in consumption patterns is expected on the back of uncertainty with regard to jobs and income losses. Expenditure on non-essential goods is likely to remain under check for some time. In fact, the share of private final consumption expenditure in GDP has already reported a decline from 59.9 percent in Q3 FY20 to 55.9 percent in Q4 FY20.

Growth likely to bottom out post Q2 of FY21

Absence of demand stimulus, a second wave of the pandemic and continuation of social distancing and quarantine measures will weigh heavy on growth prospects. With demand and investment outlook muted, robust government expenditure has been the only saviour. Nonetheless, growth is likely to bottom out post the second quarter of current fiscal year.

Some of the stimulus measures are reaching to the ground – especially through the credit guarantee scheme for MSMEs and support through MGNREGA – which is positive. The median growth forecast for IIP has been put at (-) 11.5 percent for the year 2020-21 with a minimum and maximum range of (-) 15.3 percent and 1.0 percent, respectively. The outlook of participating economists on inflation remained modest. WPI-based inflation rate is projected at -0.3 percent in 2020-21, with a minimum and maximum range of (-) 1.5 percent and 2.5 percent, respectively.

On the other hand, CPI-based inflation has a median forecast of 4.4 percent for 2020-21, with a minimum and maximum range of 3.3 percent and 6.0 percent, respectively. On the external front, the median current account balance forecast has been pegged at (-) 0.3 percent of GDP for 2020-21.

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