Rating agency ICRA in its latest report has stated that the contraction in India's Gross Domestic Product (GDP) may be narrowed down to 9.5 per cent in the second quarter of the current financial year. The GDP contraction for the April-June quarter was 23.9 per cent.
The Central Statistics Office (CSO) is expected to release the GDP data for Q2 of FY20-21 on November 27. In their report, ICRA has said that as the economy recovers from the COVID-19 induced lockdowns, the year-on-year contraction in India's GDP is estimated to have narrowed down considerably to 9.5 per cent in Q2 from 23.9 per cent in the first quarter of the current fiscal.
The report said that the contraction in the Gross Value Added (GVA) at basic prices is expected to have narrowed from 22.8 per cent in Q1 to 8.5 per cent in Q2 of FY20-21. This ease in GVA would be led by industry to negative 9.3 per cent from negative 38.1 per cent.
ICRA's principal economist Aditi Nayar has said that a significant recovery in the manufacturing and construction sector is expected to be the main reason behind the improvement in the performance of the industrial GVA in Q2 of current fiscal.
The availability of raw material inventory that was purchased at a subdued cost during the last few months has supported the earnings of manufacturing industry and helped in its recovery in Q2, according to the report. Cost-cutting measures have also proved to be beneficial.
Nayar also said the contraction in manufacturing GVA is expected to narrow substantially to around 10 per cent in Q2 FY20-21 from 39.3 per cent in Q1 FY20-21. ICRA expects the contraction in the construction GVA to narrow down to around 12 per cent in Q2 from 50.3 per cent in Q1 of current fiscal.
She added, "Nevertheless, the extent of the recovery in the performance of the informal sectors in Q2 FY2021 remains unclear, and we caution that trends in the same may not get fully reflected in the GDP data, given the lack of adequate proxies to evaluate the less formal sectors".
ICRA stated that that contraction in the GVA of hotels, trade, communication and broadcasting services will narrow down to around 25 per cent in Q2 from 47 per cent in Q1 of FY20-21. It said that the healthy speed of government spending in the first quarter has been able to prevent an even sharper fall in GDP.
"With the expenditure management measures that have been put in place, the momentum reversed in Q2 FY2021, despite the fiscal stimulus that has been announced so far," the report said. Nayar fears that the slowdown of government spending in Q2 may have slowed the pace at which the economy was recovering in Q2.