July 24, 2024

Justice for Gemmel

Stellar business, nonpareil

Icra pegs Q4 GDP growth at 2%; projects 7.3% contraction in FY21



Domestic ratings agency Icra on Monday forecast a 2 per cent GDP growth in the fourth quarter of 2020-21, and a 7.3 per cent contraction for the full fiscal year.


From a GVA or gross value added perspective, the agency pegs Q4 growth at 3 per cent and the fully year contraction at 6.3 per cent.



According the agency, the 2 per cent projected GDP growth will help the economy avoid a double-dip recession as indicated by the National Statistical Office (NSO) for Q4.


Icra’s projection is better than the 8 per cent contraction forecast by the NSO as it sees Q4 growth at only 1.1 per cent.


The full-year GDP is not the average of the four quarters as the weight of GDP in each quarter is different because the output in each quarter varies. Typically, the fourth quarter each year has the highest weight in annual GDP, which is the value of all the goods and services produced in a given 12-month period in an economy.


Adding up the four quarters growth/contraction in FY21, the full-year GDP contraction stands at 8.45 per cent. In Q1, the economy had shrunk by 23.9 per cent, which had improved to (-)7.5 per cent in Q2, while it returned to the growth territory in Q3 with a marginal 0.40 per cent expansion.


“We expect the year-on-year GVA growth at 3 per cent in Q4 of FY21 up from 1 per cent in Q3, and GDP growth in the same quarter at 2 per cent, up from 0.4 per cent in Q3, suggesting the economy is on course to avoid double-dip recession as implied by the NSO,” said Aditi Nayar, the chief economist at the agency.


She sees the full-year GDP contraction at 7.3 per cent and the full-year GVA shrinkage at 6.3 per cent.


She attributes the better-than-expected numbers to the widespread recovery in volumes benefiting from the low base due to the nationwide lockdown in March 2020.


Similarly, the higher than average growth forecast for in Q4 is on account of the assessed impact of the back-ended release of subsidies by the government.


She also said the improvement in the annual GVA growth in Q4 relative to Q3 will be led by industry (4.8 per cent growth from 2.7 per cent) and services at 2 per cent growth from a contraction of 1 per cent. However, there is likely to be a deterioration in the performance of agriculture, forestry and fishing at 3 per cent from 3.9 per cent in Q3.


Benefiting from low base, manufacturing volume recorded a 12-quarter high growth of 5.8 per cent in Q4 of FY21 as against (-) 6.3 per cent in Q4 of FY20, while continuing to trail the pre-pandemic levels.


On balance, Nayar expects growth in manufacturing GVA to increase to 4 per cent in Q4 from 1.6 per cent in Q3.


Yet, the extent of recovery in the performance of informal sector remains uncertain in Q4, and she continues to 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.


The expansion of government’s non-interest revenue expenditure stood at a considerable 62.9 per cent in January-February of FY21, substantially higher than the 22.9 per cent annual growth in Q3.


However, other services may have remained subdued in Q4.


The agency’s baseline expectation is that the GVA of public administration, defence and other services will rise 9 per cent in Q4 from (-) 1.5 per cent in Q3.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor