Recovery In Indian Economy Fragile, Says ICRA

The recovery under way in the Indian economy in Q3 FY2021 is fragile, and appears prone to risks related to rising costs, as well as a re-appearance of supply-side disruptions in some areas, ICRA has stated in a report.

"We forecast a continued, albeit mild contraction in Indian GDP of 1.0% in Q3 FY2021. However, a bright outlook for the rabi season, and greater visibility of an approaching vaccine rollout will strengthen demand and economic activity in Q4 FY2021.

The technical recession is likely to end in that quarter, with a muted 1.3% growth benefiting from a real recovery as well as the low base effect. This is expected to limit the contraction in Indian GDP in real terms to 7.8% in FY2021," ICRA has stated.

According to the rating agency, the available data suggests that the recovery in consumer demand as well as volumes in Q3 FY2021 remains tentative in many sectors.

"Urban consumer sentiment improved only modestly as per the latest survey conducted by the Reserve Bank of India (RBI). In our view, the spending seen during the festive season was driven by pent-up demand, and consumption is yet to fully stabilise in various sectors. While many indicators have displayed growth in the ongoing quarter relative to a weak performance in the same period in FY 2020, volumes still remain below FY2019 levels in a number of sectors, highlighting that a full recovery remains at a distance," ICRA has stated.

"We await further confirmation of a broad-basing of demand in sectors such as automobiles and capital goods. Additionally, supply-side and logistical disruptions appear to have re-emerged in some states. Further, the tailwinds of low commodity prices are turning into headwinds, as the visibility of vaccine availability is now pushing up global commodity prices. Moreover, various companies have reportedly started to enhance salaries, lifting the freeze that had been instituted during the pandemic," the rating agency has said.