By TIOL News Service

NEW DELHI, JULY 12, 2020: THE latest round of FICCI’s Economic Outlook Survey puts forth an annual median GDP growth forecast for 2020-21 at (-) 4.5%. The minimum and maximum growth estimate stood at (-) 6.4% and 1.5% respectively for 2020-21.

The quarterly median forecasts indicate GDP to contract by (-) 14.2% 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 2020.

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.

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.

Economic activity wise annual forecast indicated a median growth of 2.7% 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 monsoon is concerned this year and the water reservoir levels in the country stand at good levels.

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.

Besides, there has been a significant focus in the economic package on the agriculture sector and the focus has clearly been on bridging the existing gaps while creating the potential for new opportunities.
The overall approach has been holistic trying to address the marketing, infrastructure, supply chain, livestock disease management, rural livelihood issues.

Industry and services sector, on the other hand, are expected to contract by 11.4% and 2.8% respectively in 2020-21. Weak demand and subdued capacity utilization 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 utilization 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 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% in Q3 FY20 to 55.9% in Q4 FY20.

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.