India's GDP Expected To Contract Up To 4.7% In 2020-21

Due to the COVID-19 crisis, Motilal Oswal Financial Services Limited (MOFSL) in its report Ecoscope - India's Quarterly Economic Outlook cited that India's real/nominal GDP could contract up to 4.7%/3.5% this year, marking their first contraction in 41 years.

MOFSL believes that real GDP could contract 20% YoY in 1QFY21, marking the worst-ever quarter in India's post-independence history. Further, India could enter its first technical recession since independence by posting two consecutive quarters of contraction. There could be small growth of 1% YoY in 3QFY21, followed by 4-5% growth in 4QFY21.

Consequently, MOFSL expects the Indian economy to shrink 4.7% YoY in FY21, marking its first contraction in four decades and comparable to the post-independence worst decline of 5.2% in FY80.

The broking firm also sees inflation rising. "With the CPI basket heavily influenced by food items, the headline inflation is expected to average 5% in FY21, slightly higher than 4.8% last year. The core inflation, however, could ease from 4% to 2.3% this year," it said.

With weak global and domestic economic activity and the crash in crude oil prices, MOFSL believes the net impact on India's external account would be positive. Consequently, expects India to post its first current account surplus in 18 years in FY21. With foreign capital inflows, India's foreign exchange reserves could witness further build-up. Accordingly, MOFSL expects the INR to remain stable at 74-75 against the USD and average 74.8 in FY21.