Indian economy to contract 8% in FY21, growth seen at 9.6% in FY22: FICCI

India's GDP is likely to contract by 8 per cent in financial year 2020-21, but will grow by 9.6 per cent in 2021-22, as per industry body FICCI's latest Economic Outlook Survey.

The Economic Outlook Survey was conducted in January 2021, and drew responses from leading economists representing industry, banking and financial services sector, FICCI said in a release.

The annual median growth forecast for 2020-21 is pegged at (-) 8 per cent, it said. However, agriculture and allied activities are expected to grow by 3.5 per cent during 2020-21. "Agriculture sector has exhibited significant resilience in the face of the pandemic. Higher rabi acreage, good monsoons, higher reservoir levels and strong growth in tractor sales indicate continued buoyancy in the sector."

The industry and services sector, hit severely by the COVID-19 pandemic, are projected to contract by 10 per cent and 9.2 per cent, respectively. "The industrial recovery is gaining traction, but the growth is still not broad based. The consumption activity did spur during the festive season as a result of pent-up demand built during the lockdown but sustaining it is important going ahead," FICCI said.

Besides, some of the contact intensive service sectors like tourism, hospitality, entertainment, education, and health are yet to see normalcy.

The survey pegged India's GDP contraction at 1.3 per cent in October-December, followed by 0.5 per cent growth in January-March quarter of 2020-21.

"Participants of the survey expect the economy to perform much better and have projected a median GDP growth rate of 9.6 per cent for the financial year 2021-22. The strong rebound in growth will be supported by a favourable base as economic activity normalises post the sharp pandemic-led contraction," it said, adding that the minimum and maximum growth estimate was 7.5 per cent and 12.5 per cent, respectively, in the survey.

However, it warned that a surge in COVID-19 cases and emergence of new strains of the coronavirus can hurt the improvement seen in the economy and called for continuing the preventive measures against the virus.

On fiscal front, the survey pegged India's fiscal deficit at 7.4 per cent for 2020-21 against the government's target of 3.5 per cent.

The respondents expected the government's 'Atmanirbhar Bharat' package to bear fruits from 2021 onwards. The announcement of production linked incentive schemes, government's continuous efforts on easing the business environment and keenness on improving national infrastructure are likely to set the stage for India to become a manufacturing hub.

However, the economists warned that increased risks may be visible in the banking sector and the growth will be subject to containment of the pandemic. "...improvement in personal consumption is highly contingent upon successful administration of the COVID-19 vaccine. Increased precautionary savings are likely to continue in the meantime. Persistent job losses and salary cuts in some sectors have prodded consumers to remain cautious," FICCI said.

On the global front, the participants expected synchronised growth recovery, on the back of COVID-19 vaccination programme, supported by continued fiscal and monetary stimulus in 2021.

Also read: Budget 2021: ICRA pegs fiscal deficit at 7.5% of GDP in FY21, 5% for FY22