While the Reserve Bank of India chose either to not model, or not declare its estimate on growth, or inflation, in the August policy document, the economists roped in to forecast medium term macroeconomic developments have given their estimate.
They predict that India’s gross domestic product (GDP) could contract by 5.8 per cent in the current financial year, and would spring back to near-7 per cent in FY22 under a favourable low base.
Despite this precipitous fall, they expect the farm sector to grow at 3.4 per cent, and industry and services to contract sharply by 9.7 per cent, and 6.1 per cent, respectively. This was the 65th round of the bimonthly surveys that began in 2007.
At the same time, they expect consumer inflation to moderate to 3.3 per cent in the quarter ending December 2020, and to 3 per cent in the final quarter of FY21. In the current quarter, which will end in September, they project consumer price index (CPI)-based inflation to be close to 5 per cent.
Pricing power in the wholesale market is going to take a massive hit, though, they noted. Wholesale price index (WPI)-based inflation is expected to stagnate near 0 per cent, according to them.
In the current round, 28 economists including Abhishek Gupta of Bloomberg Economics, Anagha Deodhar at ICICI Securities, Gaurav Kapur from IndusInd Bank, contributed to the modelling.
The forecasters took note of the massive jolt to the economy in their current (August) estimate, as opposed to the June estimate, when they had forecast a GDP contraction of 1.5 per cent in FY21.
Private consumer spending is the bedrock of India’s GDP, occupying more than 60 per cent of the economy in FY20. That could contract by 6 per cent, the professional forecasters noted.
Investment in the economy, which is represented by gross fixed capital formation, is expected to contract by 6 per cent, the report said.