The first quarter (April to June) is likely to be the worst of current financial year due to economic disruptions caused by Covid-19 pandemic and recovery is expected ahead, global consultancy firm Ernst & Young (EY) has said.

“High-frequency indicators for India are giving positive signals after the first two months of pandemic. Clearly, Q1 FY21 growth is likely to be the worst among the four quarters of FY21,” it said in its latest thought leadership publication Economy Watch. In June and July, the Purchasing Managers Index (PMI) manufacturing was close to the benchmark level of 50 at 47.2 and 46 respectively.

Although the Index of Industrial Production (IIP) has continued to contract in June, its rate of contraction has come down to minus 16.6 per cent from its May level of minus 33.9 per cent.
In June, passenger vehicle sales picked up sharply with sales of 1.2 lakh units as compared to sales of 33,546 units in April and May considered together.

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Although power consumption shows a continued contraction, the rate of contraction has been coming down over successive months since April when it was at minus 25 per cent. This fell to minus 0.4 per cent in the first 20 days of August.In the case of merchandise exports also, the rate of contraction has slowed to a five-month low of minus 10.2 per cent in July. Foreign exchange reserves continued to rise steadily reaching a level of 538 billion dollars by August 7.

“However, one adverse development is the slowing down of bank credit growth to 5.8 per cent in the fortnight ending July 17,” said D K Srivastava, Chief Policy Advisor at EY India.
The Reserve Bank of India’s August survey of professional forecasters has indicated a mean growth forecast of minus 22.8 per cent in Q1 FY21. “Any growth number that is better than this would come as a positive news,” said Srivastava.

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