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
full year contraction at 6.3 per cent.
According to 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 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.