Brickwork Ratings has joined in on the chorus of projections predicting Indian economy's decline this financial year, almost doubling its earlier projection of 5.5 percent decline to 9.5 percent now.
The government's policy response has so far been ineffective, says the analysis by the leading ratings agency. Measures like liquidity boosting and credit flow has helped the financial system somewhat, but industries are still suffering. “Both the RBI and government have announced enough supply-side measures. Now it is time to come up with demand-side measures,” it says.
The only positive takeaway is that the decline in GDP may only be in single digits, and not as precarious as the Q1 figures of nearly 24percent portrayed. In fact, it reassures that 'the pace of contraction will be slower' in the remaining half of the year, with the July to September GDP decline projected at 13.5 percent
An analysis by the credit rating agency points to the distress in economic activities cause by the lockdown, as seen in the April-June GDP figures. It points to the 'severe distress' in the services and manufacturing sector caused by Covid-19, a reason it gives for not hoping for any miraculous turnaround in the remaining six months in the financial year. Almost all the major sub-sectors reported contractions of various magnitudes, with construction, manufacturing and trade, hotels and transport having been hit the hardest. In the services sector, even public administration showed a contraction of 10.3 percent, compared with 7.3 percent positive growth in the Q1 of FY20. The contraction in some services is large, and as these continue to be under restricted functioning, the improvement in the coming quarters will be staggered.
“Almost all the major sub-sectors reported contractions of various magnitudes, with construction, manufacturing and trade, hotels and transport having been hit the hardest. In the services sector, even public administration showed a contraction of 10.3 percent, compared with 7.3 percent positive growth in the Q1 of FY20. The contraction in some services is large, and as these continue to be under restricted functioning, the improvement in the coming quarters will be staggered,” the note says.
BWR warns against getting excited at early trends. The high frequency indicators seen in June were due to pent-up demand, it points out, adding how, despite gradual relaxation of lockdown, economic activities were still not back to pre-Covid levels.
In fact, it singles out the rural economy as the only bright spot, with the agriculture sector, which grew 3.4 percent in first quarter, predicted to perform well in the coming months as well.
Some indicators such as the manufacturing PMI, consumer non-durables, and two- and three-wheeler sales strengthen the signs of resumption, but sustained recovery holds the key for the prospects for third and fourth quarter GDP estimates, says BWR.
