India’s GDP Contraction Rate Narrows to 9.5% in Q2

As the economy recovers from the lows of pandemic-induced lockdown, the year-on-year contraction in India’s GDP is expected to narrow appreciably to (-) 9.5 per cent in Q2FY21 from (-) 23.9 per cent in Q1, said ratings agency ICRA on Thursday.

Similarly, the contraction in the gross value added (GVA) at basic prices is expected to have moderated considerably to (-) 8.5 per cent in Q2FY21 from (-) 22.8 per cent in Q1FY21, led by industry and services.

According to Aditi Nayar, Principal Economist, ICRA, “A substantial recovery in manufacturing and construction is likely to underpin the expected improvement in the performance of the industrial GVA in Q2 FY2021. Various sectors of manufacturing recorded an improvement in demand and volumes in Q2 FY2021, although the performance was admittedly uneven.”

“In addition to the continued cost-cutting measures, the availability of raw material inventory that had been procured previously at subdued costs, supported the earnings of the manufacturing entities in the just-concluded quarter relative to Q1 FY2021. We expect the contraction in manufacturing GVA to narrow considerably to around 10 per cent in Q2 FY2021 from 39.3 per cent in Q1 FY2021.”

Nevertheless, she pointed out the extent of the recovery in the performance of the informal sectors in Q2FY21 remains unclear.

Besides, the rating agency highlighted that the robust recovery in the performance of key inputs of construction such as cement and steel, and healthy central government awards in roads and railways during Q2FY21, stood in contrast to the contraction in the outgo towards capital spending by the government and the private sector.

Moreover, labour availability challenges persisted in some regions. Driven by the trend in inputs and central government awards, ICRA expects the contraction in construction GVA to narrow to around 12 per cent in Q2FY21 from the sharp 50.3 per cent in Q1FY21.

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