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Sees 9.5% GDP contraction in FY21

Sees 9.5% GDP contraction in FY21
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Sees 9.5% GDP contraction in FY21

Highlights

While the recovery in the rural economy is expected to strengthen further, the turnaround in urban demand is likely to be lagged in view of social distancing norms

Mumbai: The Reserve Bank expects the GDP to contract by 9.5 per cent in the current financial year due to the impact of the coronavirus pandemic on domestic as well as global economies.

Unveiling the bi-monthly monetary policy statement, RBI Governor Shaktikanta Das said that GDP was likely to turn positive at 0.5 per cent in the January-March quarter of the current financial year. "Taking into consideration (various factors) and the uncertain Covid-19 trajectory, real GDP growth in 2020-21 is expected to be negative at (-)9.5 per cent, with risks tilted to the downside: (-)9.8 per cent in Q2:2020-21; (-)5.6 per cent in Q3; and 0.5 per cent in Q4. Real GDP growth for Q1:2021-22 is placed at 20.6 per cent," he said.

The economy contracted 23.9 per cent in the April-June quarter of the current fiscal, mainly on account of the disruption in normal business activities following the lockdown to check spread of the coronavirus. Das said that while the recovery in the rural economy is expected to strengthen further, the turnaround in urban demand is likely to be lagged in view of social distancing norms and the elevated number of Covid-19 infections.

"While the contact-intensive services sector will take time to regain pre-Covid levels, manufacturing firms expect capacity utilisation to recover in Q3:2020-21 and activity to gain some traction from Q4 onwards. Both private investment and exports are likely to be subdued, especially as external demand is still anaemic," he noted. Further, the Governor said that by all indications, the deep contractions of April-June quarter are "behind us" and "silver linings are visible in the flattening of the active caseload curve across the country".

Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-Covid growth trajectory, he added. Referring to the current debate about the shape of the recovery - whether it is V, U, L, W of K -- Das said that it was likely to predominantly be a three-speed recovery, with individual sectors showing varying paces, depending on sector-specific realities.

Sectors that would open their accounts the earliest are expected to be those that have shown resilience in the face of the pandemic and are also labour-intensive. These include agriculture and allied activities; fast moving consumer goods; two-wheelers, passenger vehicles and tractors; drugs and pharmaceuticals; and electricity generation, especially renewables.

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