India Ratings and Research (Ind-Ra) has revised India's GDP estimate for the current financial year to -7.8 per cent from -11.8 per cent earlier, primarily due to the easing of COVID-19 curbs and better-than-expected growth numbers in the second quarter.
However, it remains to be seen how sustainable the Q2 recovery is, considering most of the impetus was due to festival and pent-up demand, says the ratings agency.
Ind-Ra says the COVID-induced challenges will unlikely go away till mass vaccination becomes a reality but economic agents and activities seem to have adjusted to the post-COVID-19 world.
In Q3, Ind-Ra expects growth to improve significantly to -0.8 per cent. In Q4, India will be officially out of recession and could post around 0.3 per cent growth.
If the current improvment continues, India's growth in the next fiscal will be around 9.6 per cent, mainly due to the favourable or weak base of FY21, expects Ind-Ra.
Most non-contact intensive sectors, manufacturing, electricity, utilities, mining, construction, either recorded positive growth or reduced negative growth in Q3. Contact-intensive services sectors, trade, hotel, real estate, and tourism, may remain subdued for some more time due to social distancing norms and risk aversion, the agency says.
Throughout the pandemic, agriculture has been a bright spot, riding on the back of the favourable 2020 monsoon. Ind-Ra expects agriculture, industry and services to grow at 3.5 per cent, negative 10.3 per cent and negative 9.8 per cent YoY, respectively, in FY21.
It says private consumption expenditure and fixed capital formation to fall 13.4 per cent and 16.8 per cent YoY, respectively, in FY21. Government expenditure may grow at 3.3 per cent but exports could fall 7.9 per cent YoY in FY21 due to trade conflict and uncertainty in the global economy.
The Centre's FY21 fiscal deficit has been budgeted at 3.5 per cent of GDP. It expects the fiscal deficit to come in at 7 per cent of GDP. The rating agency also expects the current account to be in surplus at 1.1 per cent of GDP.