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  3. Indian economy likely to show improvement in Q2 with GDP contraction of 9.9%: Care Ratings

Indian economy likely to show improvement in Q2 with GDP contraction of 9.9%: Care Ratings

24 Nov 2020 Evaluate

Care rating in its latest report has said that the Indian economy is expected to throw up better numbers in the September quarter (Q2) with GDP contraction of 9.9 per cent, as against 24 per cent in Q1 at the onset of the pandemic. In the first contraction since 1980, the economy shrank a full 23.9 per cent in the first quarter of the fiscal after the whole nation was put under a strict lockdown. The agency said ‘We expect GDP to contract 9.9 per cent in the second quarter, and for the full year to March by 8.2 per cent’.

It added that from a gross value added point of view, de-growth will be 9.4 per cent in the September quarter. It based its optimism on growth in agriculture, forestry, financial services, real estate and professional services. In case of agriculture, the report said the main kharif harvest started late September and will carry on till December. Therefore, the good kharif crop expectation will show in the Q3 numbers only. The likely positive impetus in Q2 is based on two factors -- anticipation of a pick-up in demand during the festivals and uptick in corporate profit, which though has been more due to the cost-savings rather than top line growth.

In fact, it said sales growth continued to be negative in Q2 but overall numbers are positive as cost economies have been more on salary bills, power and fuel and selling expenses, combined with a drop in growth in raw material costs due to fall in sales. It noted that the marginal 1 per cent positive growth rate in the financial and other services is driven mainly by banking where growth in deposits has been strong even through credit growth was negative. It expects manufacturing de-growth to improve to (-) 10 per cent from (-) 39.3 per cent in Q1, and mining and construction at (-) 12 per cent from (-) 30 per cent in Q1. It said electricity, gas and water will also recover to (-) 1.5 per cent from (-) 7 per cent in Q1, and added that while trade and other services will improve to (-) 27 per cent from (-) 47 per cent in Q1.

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