CARE Ratings estimates GDP degrowth of 6.1 per cent

These are revised observations, considering the lockdown reinstated even in July across many states and manufacturing units operating at half of its capacity.
CARE Ratings estimates GDP degrowth of 6.1 per cent

CARE Ratings, a credit rating agency, in its recent forecast, has revised its observations to GDP degrowth from a positive Gross Domestic Product (GDP) outlook in May this year.

GDP forecasts for FY21 are unique as they would be varying depending on the evolving situation and the assumptions being made on the recovery process in the country. This is so as the explanatory factors i.e. the extension of lockdown and the quantum of economic activity permitted is unknown and has to be assumed.

In May the agency had projected a decline in GDP growth of 1.5-1.6 per cent on the assumption that the lockdown would be ending by the month end and that the recovery process will be gradual and be calibrated across sectors with the second half being closer to normal.

However, given that the nation is into a lockdown for July too with several restrictions on the resumption of services in particular as well as movement of people, the cut-off date for normalcy will spread into the the latter part of the third quarter and more likely to the fourth quarter.

The CARE Ratings forecast pointed out, “Our assumption now is that 2/3 of the economic sectors would broadly be operating at 50-70 per cent capacity by end Q3 and the balance may not even reach this state this year. In particular services like hospitality, tourism, entertainment, travel would take a much longer time pan India to resume anywhere close to normal with interstate restrictions being the norm for the next quarter or so.”

“The restriction on movement of people translates into fall in demand for goods and services and further exacerbates the low-consumption growth syndrome that pervaded for three years now. Job losses and pay cuts will add to the stickiness in spending even during the festival time,” it added.

Taking into consideration the industrial sector which falls in the secondary sector, where manufacturing locally is been looked as the force towing out India’s falling industrial landscape towards normalcy.


Growth in
FY21 (%)



Secondary (manufacturing, mining, electricity)


Services (including construction)




Source: CARE Ratings

The new assumptions suggest that good rural income cannot compensate for this loss of purchasing power which is topped with uncertainty. Also, in this scenario, a direct fiscal stimulus has been ruled out for the year. If, however, there is a surprise package, then the forecast could change.

The manufacturing sector is going through low demand in the domestic market due to operational worries upon its customers. The relief packages announced by the government will show better forecasts in the long term but there is a need to ensure some short term boosters.

Under these assumptions, our forecast for GDP growth is now -6.4 per cent for FY21 with Gross Value Added (GVA) degrowth estimated to be around -6.1 per cent.

“Positive growth to come from only agriculture and the government sector within the 8-fold classification of the CSO,” identified CARE Ratings forecast.

However, the revised projections also identified that the agricultural production would be handicapped by base year effect as growth was high at 4 per cent last year.

“Higher agricultural production may not necessarily lead to higher income for farmers as excess supplies may lead to moderation in prices given that the MSP increase has not been very sharp this year. Therefore, rural consumption while increasing will not be able to compensate for lower spending in the non-farm sector,” observes CARE Ratings.  

The forecast also added that the government sector would grow by 10 per cent in the normal course and excludes the possibility of any fresh stimulus in the form of additional spending. The sharper fall in real GDP also means that the nominal GDP for the year will also decline assuming inflation of 5 per cent which in turn will affect the projected fiscal deficit number of the central government which will be in the region of 8 per cent for FY21.

In the end, it is to look at how the manufacturing sector performs in Q3, which depends on the performance of the manufacturing sector and the control over the current Covid 19 pandemic. 

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