Industry body FICCI’s latest Economic Outlook Survey has pegged India’s growth for 2020-21 at (-) 4.5 per cent as the country continues to see a gradual rise in financial stress.
Data shows that while overall growth estimates stand at -4.5 per cent, the GDP estimated for the first quarter of the year is abysmal at(-) 14.2 per cent. The official growth numbers for the first quarter are expected to be released by the end of August 2020.
FICCI puts India’s minimum growth estimate at (-) 6.4% and maximum growth at 1.5% for the year 2020-21.
The Indian economy was already reeling under economic pressure when the lockdown was announced at the end of March. It may be noted that the Covid-19 lockdown has sharply accelerated economic stress in the country.
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.
Agriculture in bright spot
Agriculture seems to be the only sector with a silver lining right now. FICCI’s economic outlook survey observed that there is an upside as far as the performance of monsoon is concerned this year and the water reservoir levels in the country stand at good levels.
Since the lockdown was announced, the government focused on agriculture. Government’s focus has been on bridging the existing gaps while creating potential for new opportunities. In the Rs 20 lakh crore economic relief package, the government tried to address marketing, infrastructure, supply chain, livestock disease management, rural livelihood issues.
Economic activity wise annual forecast indicated a median growth of 2.7 per cent for agriculture and allied activities in 2020-21.
Industry, service sector suffer
Meanwhile, one of the biggest casualties of the virus has been the industry and service sector, with travel. food and beverage industry expected to contract by 11.4 per cent and 2.8 per cent respectively in 2020-21.
Weak demand and subdued capacity utilisation rates were already manifesting into a drag on investments and the Covid-19 pandemic has further extended the timeline for recovery, noted the survey.
Even though activity in sectors like consumer durables, FMCG etc. is gaining traction, majority of the companies are still operating at low capacity. 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 per cent in Q3 FY20 to 55.9 per cent in Q4 FY20.
Absence of demand, 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 after the second quarter of the current fiscal year. FICCI said 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.
The median growth forecast for IIP has been put at (-) 11.5 per cent for the year 2020-21 with a minimum and maximum range of (-) 15.3 per cent and 1.0 per cent respectively.
The outlook of participating economists on inflation remained modest. WPI based inflation rate is projected at -0.3 per cent in 2020-21, with a minimum and maximum range of (-) 1.5 per cent and 2.5 per cent respectively.
On the other hand, CPI-based inflation has a median forecast of 4.4 per cent for 2020-21, with a minimum and maximum range of 3.3 per cent and 6.0 per cent respectively.
On the external front, the median current account balance forecast has been pegged at (-) 0.3 per cent of GDP for 2020-21.
In addition to the forecast of key macroeconomic variables, economists were asked to share their views on certain contemporary subjects as well.
What economists say
Economists were asked to share their views on the fiscal stimulus package 2.0 and any additional measures that can be undertaken as part of the survey.
Participants were of the view that government measures in stimulus 2.0 needed to focus broadly on saving lives and on undertaking deep structural reforms.
While they felt that the quasi-fiscal measures and structural reforms announced were “steps in the right direction”, the ground implementation and results will take a long time due to the present situation.
A majority of economists believed that the government could have undertaken a more aggressive fiscal stance than what has been announced in the two packages combined.
Participating economists highlighted that the measures announced by both RBI and the government focussed largely on addressing supply-side constraints with limited support for the creation of demand.
Economists who took part in the survey strongly felt that there is a need to provide more measures to boost demand conditions in the economy.
Reviving demand in the economy currently holds greater importance, not only because India is broadly a consumption-driven economy but also due to the fact that investment-driven growth is unlikely to gather momentum.
Apart from pure cash transfers, the government could also consider GST rate reductions especially in the non-essential goods segment which has the potential to drive demand.
Furthermore, some sort of tax waivers could also be undertaken for low-income groups. Alongside, sector-specific measures could also support recovery in a big way.
Moreover, the economists were also asked to share their suggestions on further monetary policy actions that can be undertaken by the Central Bank.
The participants unanimously believed that the RBI would undertake further cuts in the repo rate in future to minimise the economic shock.
Nonetheless, a majority of the participants opined that cutting interest rates would not pump economic growth, given that demand conditions have remained subdued from even before the pandemic hit the economy.
Economists also said that banks remained risk-averse despite government pushing them to infuse liquidity in the market.
Participants said that while the RBI has been proactive in addressing liquidity constraints in the economy, most measures have not yielded expected results.
A muted response to all the schemes that RBI came up with to infuse cash in the system shows that the economy will take time to recover.
Also Read | Rate cut hopes help Sensex, Nifty as Reliance gains again
Also Read | Start-ups get Covid-19 jitters