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India's GDP growth may contract by 6.4% in FY21: Care Ratings
Jul-03-2020

Care Ratings in its latest report has revised India's Gross Domestic Product (GDP) growth forecast for the current financial year (FY21) to (-) 6.4 percent as economic activity continues to be under restriction due to the lockdown on account of the Covid-19 pandemic. In May, it had projected a decline in GDP growth of 1.5-1.6 percent in FY21. It said the sharper fall in real GDP also means that the nominal GDP for the year will also decline assuming inflation of 5 percent which in turn will affect the projected fiscal deficit number of the central government which will be in the region of 8 percent for FY21.

The report said given that the nation is into a lockdown for July too with several restrictions on resumption of services in particular as well as movement of people, the cutoff date for normalcy will spread into the latter part of the third quarter and more likely to the fourth quarter. In FY20, the country's economy grew at an estimated 4.2 per cent, almost a decade low. It, however, said the positive growth will come from only agriculture and the government sector.

According to the report, services like hospitality, tourism, entertainment, travel would take a much longer time pan India to resume anywhere close to normal with interstate restrictions being the norm for the next quarter or so. It also said the restriction on movement of people translates into fall in demand for goods and services and further exacerbates the low consumption growth syndrome that pervaded for three years now. Job losses and pay cuts will add to the stickiness in spending even during the festival time. It is assumed that good rural income cannot compensate for this loss of purchasing power which is topped with uncertainty.

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