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India poised to perform better than predicted by rating agencies

India poised to perform better than predicted by rating agencies

Have the rating agencies, which have predicted a deep slump in economic growth for India, stuck their neck out a little too early? Even as economic growth for the April-June quarter of the current financial year is expected to nosedive into the negative zone, the picture for the whole year may not be as dismal as it has been made out to be.

The International Monetary Fund recently projected a 4.5 per cent contraction of the Indian economy.

The July-September quarter will be crucial as a few analysts opined that growth will depend on how demand and economic activities pick up in the next one or two months.

EY India chief economic adviser D.K. Srivastava said that India could well be in the positive zone, albeit with a marginal growth rate—at a sub 1 per cent level.

He said that agriculture, which provides livelihood to over 55 per cent of the country’s population, has remained unscathed by the coronavirus-induced lockdown. Demand for fertilizer has remained strong and, with expectations of normal or above normal monsoon, this sector is set to perform better. Agriculture growth could be more than 3 per cent this fiscal, he said.

This, along with Rs 40,000 crore increased allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) over the Rs 61,000 crore already provided for in the Union Budget, could give the much required push to the rural sector.

The manufacturing and services sectors, which were badly dented by the lockdown, too seem to be recovering as the government opens up economic activities in both essential and non-essential segments. Much of the manufacturing work has resumed from May-end.

Services, which account for the lion share of India’s GDP, comprise a host of sectors including trade, hotels, tourism transport, communication, financial services, and real estate.

Srivastava pointed out that while a few of the sectors that come under the broader umbrella of services like hotels, trade and transport may continue to remain subdued with little activity, the others including financial services, communication, and IT could actually perform better than other years.

“If one analyses, the services sector as a whole will not do badly. A few industries such as hospitality and transport will not recover very soon, others could pull up. So as more and more economic activities resume, the services sector may perform and contribute to the overall GDP growth,” Srivastava said.

While the industrial of production index (IIP)—reflecting the overall industrial activity—for April and May is set to be in the red, data for June could bring some cheer.

Srivastava noted that India could record positive GDP growth from third and fourth quarters. “India’s growth rate could be in the positive zone but surely it will be sub 1 per cent,” Srivastava added..