Ratings agency ICRA has revised its forecast for the contraction in India’s FY21 GDP to 11 per cent from its earlier assessment of 9.5 per cent.
The ratings agency cited the elevated levels of Covid-19 infections at the end of Q2FY21.
However, ICRA expects the economic situation to improve in H2FY21 relative to H1FY21.
Besides, the agency revised its year-on-year (YoY) forecasts for Q3FY21 to (-) 5.4 per cent from (-) 2.3 per cent and Q4FY21 to (-)2.5 per cent from (+) 1.3 per cent.
ICRA cautioned that if the pace of YoY decline in Q1FY21 gets revised below the initial estimate, after data for the MSME and less formal sectors becomes available, the overall GDP outcome for FY21 could be even worse than its expectations of an 11 per cent contraction.
“Nevertheless, higher government spending, a faster global recovery, and an early decline in fresh Covid-19 cases could impart an upside to these forecasts.”
Furthermore, the agency said that revenue shock being experienced by the Central and the state governments would limit the extent of fiscal support that may be forthcoming and result in protracted fears about deferral of both the capex and the release of timely payments.
“Moreover, fresh restrictions being imposed in major trading partners following a new wave of Covid-19 cases, could cap the extent of further improvement in exports in the near term,”
In addition, ICRA said it expects the YoY contraction in GDP to narrow considerably to 12.4 per cent in Q2FY21, from 23.9 per cent in Q1FY21, in line with its previous forecast.