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Rs 3 lakh crore MSME loan scheme: PSBs struggle to improve actual disbursals; will private banks come on board?

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A month after Union Finance Minister Nirmala Sitharaman launched the mega Rs 3 lakh crore loan scheme for micro, small and medium enterprises (MSMEs), the response remain muted. There is a significant difference between amount sanctioned and the actual amount disbursed so far.

In fact, on a cumulative basis, only half of the amount sanctioned is disbursed till 16 June. PSB bankers are now on an overdrive to make the scheme work under directions of the government. However, low demand scenario is limiting the actual disbursals. Banks are also concerned about the likelihood of these loans going bad in a slowing economy.

Under the scheme, existing MSME borrowers of PSBs can get additional funds of upto 20 percent of their loan outstanding as on February 29. Government will provide complete guarantee to banks on these loans including the interest amount. This was announced as part of the Rs 20 lakh crore economic package to fight Covid-19 induced economic slowdown.

State-run banks, which are under heavy pressure to disburse loans, have disbursed Rs18, 306 crore against the sanctioned amount of Rs36,486 crore till 16 June. The sanctioned amount is about 12 percent of the total scheme mount (Rs 3 lakh crore) and the disbursed amount, roughly about 6 percent. “What is working against the scheme is the poor demand scenario. Why would companies borrow now if there is no business?,” said a banker on condition of anonymity.

Who gave how much?

Among the public sector banks, State Bank of India (SBI), country’s top lender by assets, has done maximum cumulative sanctions till June 16, at Rs 15,317 crore. Against this, the bank has disbursed Rs9,489 crore loans. SBI has disbursed this amount to 91690 accounts. The next big sanction amount is from Bank of Baroda, which has sanctioned Rs4,560 crore loans of which Rs1,255 crore is disbursed. Canara Bank has cumulatively sanctioned Rs3,683 crore loans of which disbursed amount is Rs1,619 crore loans. Punjab National Bank has cumulatively sanctioned Rs 3371 crore loans of which Rs1187 crore has been disbursed.

Except these banks, all other PSBs have sanctioned less than Rs 3000 crore and, logically, disbursed even lesser amount. The lowest cumulative sanction figure is by Punjab and Sind Bank at Rs 200 crore, which so far disbursed Rs 157 crore. Among the states, the highest amount disbursed is in Tamil Nadu--around Rs 2251 crore against total sanctions of Rs 3616 crore. The lowest is in Lakshadweep, at Rs25 lakhs against sanctions of Rs41 lakhs.

Private banks not on board yet

The MSME loan scheme was originally meant for PSBs. However, the government now wants private sector banks too to come on board. These lenders are yet to come on to the picture. Recently during a review of the scheme, the finance ministry is reportedly asked bankers on the possibility of participating private banks in the scheme.

Some of the larger lenders like HDFC Bank and ICICI Bank has exposure to MSME clients and small businesses. However, private banks are generally not keen to push loans aggressively to MSMEs at this stage since they don’t see viability in the present scenario.

“This is a good business, no doubt. But here also the problem is the demand,” said a official with a private bank. “Right now, there is no activity outside. Very difficult to push loans unless there are quality borrowers come to us for capital,” said the banker who didn’t want to be named.

Scheme turning to a loan mela?

However, for public sector banks do not have the luxury not to lend under a government scheme. According to senior bankers and industry officials, banks are on an overdrive to push the scheme. Officers are told to get maximum number of loan sanctions done from all eligible borrowers even though many of these sanctions do not translate into actual sanctions.

Banks are, hence, making phone calls to all MSME borrowers and offering loans under pressure from the top management. Some banks have a system of pre-sanctioned loans as well. This is despite the worry that many of these loans may not come back. Companies are not yet back on track after the prolonged lockdown since there is no demand for non-essential goods yet. Absence of workforce is also creating problems for MSMEs and SMEs (small and medium enterprises) to get back to normal activity.

“Private banks will be very cautious in lending to MSMEs even if they are asked to because there is very less demand for working capital. These banks will have to answer their shareholders about their credit decisions later,” said Siddarth Purohit, analyst at SMC Global Securities.

Some banks are also encouraging customers to use the scheme to pay up earlier dues. This would mean that customers are not getting any fresh money in hand to revive their business. Also, the 20 percent limit is a constraint to borrow enough money to meet their business needs. Small MSMEs typically borrow Rs 2-Rs 10 lakhs. If the borrower outstanding amount as on February 29 is too low, then the eligible amount will not be enough to meet their business needs.

Andhra Pradesh govt presents Rs 2.24 lakh crore budget for FY 2020-21

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The Andhra Pradesh government on Tuesday presented a Rs 2.24 lakh crore budget for the financial year 2020-21, a decrease of 1.4 percent over last year, with an estimated revenue deficit of Rs 18,434 crore and fiscal deficit of a whopping Rs 48,295 crore.

Finance Minister Buggana Rajendranath presented the Budget estimates in the Legislative Assembly on the first day of the brief budget session.

The 1.4 percent decrease in the budget estimates was on account of major economic slowdown during the COVID-19 pandemic, the Finance Minister said.

The state's debt burden increased to Rs 3.02 lakh crore at the end of March 2020, up from Rs 2.59 lakh crore a year ago.

In the 2020-21 fiscal, the state's debt is further estimated to shoot up to Rs 3.48 lakh crore.

The state's revenue shortfall was a staggering Rs 68,000 crore as the revised estimates for 2019-20 showed receipts of only Rs 1.10 lakh crore as against the estimated Rs 1.78 lakh crore.

However, the Finance Minister projected a revenue of Rs 1.61 lakh crore in the 2020-21 fiscal.

He proposed an overall expenditure of Rs 2.24 lakh crore during 2020-21, with revenue expenditure alone estimated at Rs 1.80 lakh crore and capital expenditure, including loan repayments, at around Rs 44,396 crore.

"There is nothing more important to this government than the comprehensive development of AP and its positioning at the very top in terms of human development. It is the constant endeavour of our government to not just live up to the expectations of people but outgrow them by bridging the gulf between lost opportunities of the past and promises of the future," he added.

India's forex reserves cross $500 billion-mark

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India’s forex reserves have now crossed the $ 500 billion mark in the week ended June 12. According to the data released by the Reserve Bank of India (RBI), the reserves reached $ 501.7 billion, marking an increase of $ 8.22 billion in a week. Reserves had surged $3.43 billion to a fresh all-time high of $493.48 billion in the week-ended May 29.

What is its significance?

Adequate forex reserves are key for a healthy economy. It gives the much needed cushion to the economy in the event of an economic crisis to support the imports. India, at one point, had weak forex cover. In 1991, the country had to pledge gold to raise money. At the current level, India has enough reserves to cover imports of over a year.

What are the components of forex reserves?

Forex reserves consist of foreign currency assets, gold reserves, special drawing rights and reserves in IMF. Of these, foreign currency assets are the biggest component followed by gold.

What is the use of forex reserves for RBI?

RBI, time to time, intervenes in forex markets to balance the volatility in currency markets. It either buys dollars to release rupee into the market or sell dollars to support rupee. Also, as mentioned earlier, forex reserves are handy if the economy plunges into a crisis.

What is supporting the forex reserves despite the economic slump?

According to rating agency CARE, forex reserves continue to register higher levels every week reflecting the strong external situation of the economy due to lower trade deficit and higher capital inflows on account of foreign investment. ECB registrations too have been higher during this period due to the favourable interest rate differential as well as stable rupee. Strong inward investments in the form of portfolio investments and rise in foreign currency assets have supported forex reserves.

Is there any other way India can use forex reserves?

There have been opinions that India should use its forex reserves for infrastructure financing. Some experts have opined that the country doesn’t need to keep high level of forex reserves idle but can use part of it for other development activities, mainly to give a push to infrastructure. But not all experts agree on this point.

Bharatmala Pariyojana to get delayed by 4 years: ICRA

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The first phase of the ambitious Bharatmala Pariyojana (BMP) that was scheduled for completion in 2021-22 is now likely to get completed by 2025-26, rating agency ICRA said on Wednesday.

Till February 2020, a total of 246 road projects with an aggregate length of about 10,100 km were awarded under BMP Phase-I at a total cost of Rs 2.38 lakh crore.

"The Bharatmala Pariyojana (BMP) Phase–I is likely to be delayed by four years and get completed by FY2026 instead of earlier envisaged FY2022," ICRA said.

Saying that till February projects worth Rs 2.38 lakh crore were awarded under BMP Phase-I, ICRA said the average cost of award stood at Rs 23.80 crore per km, which is 54 percent higher than initial estimated cost of Rs 15.52 crore per km.

The land acquisition cost for NHAI, it said, increased at a CAGR of 27 percent from FY2007 to FY2019 from Rs 0.21 crore per hectare to around Rs 4 crore per hectare.

This along with prudent bidding by developers at a premium when compared to NHAI's base price has resulted in significantly higher awarded cost for BMP Phase-I when compared to initial estimates.

Further as per ICRA's estimates, the prevailing uncertainty due to COVID-19 and the consequent impact on valuations could delay asset monetisation plan of NHAI through toll-operate-transfer (TOT) auctions and launch of infrastructure investment trust (InvIT).

Depending on how quickly the normalcy is restored, these plans could take off by end of FY2021. Therefore, 2020 is likely to be another year of muted awards.

Shubham Jain, Senior Vice President, Corporate Ratings, ICRA said, "As on March 2020, 16,219 km of BMP (around 47 percent of BMP) was pending to be awarded. We expect the awards to remain in the range of 3,000-3,200 km in FY2021 and increase thereafter once NHAI completes its proposed fund raising through infrastructure investment trust.

"With pick up in awards starting FY2022, the Bharatmala awarding activity is expected to get completed by FY2023 only," he added.

The Cabinet Committee on Economic Affairs (CCEA) approved the BMP Phase-I along with other programmes on October 24, 2017.

A total of around 34,800 km roads are being considered in BMP Phase-I, which also includes 10,000 km of balance road works under NHDP.

Estimated outlay for BMP Phase-I was Rs 5.35 lakh crore spread over five years between 2017-2022, as per the initial plan.

As per the revised funding plan dated September 2019, the dependence on market borrowings for BMP increased substantially by 72 percent to Rs 3.59 lakh crore, while the budgetary allocations and contribution from central road and infrastructure fund were reduced by 46 percent to Rs 1.83 lakh crore.

Consequently, borrowings of NHAI are expected to increase significantly and peak by FY2023 or FY2024; at the same time, NHAI's asset monetisation also remains critical to meet the funding requirements of BMP Phase-I, ICRA said.

"About 21 percent of BMP execution is completed as on March 31, 2020. Given the limited labour availability and productivity loss due to COVID-19, ICRA expects the pace of execution for FY2021 to remain low at 3,104 km and thereafter witness an increase by 10-15 percent in FY2022 before peaking in FY2024. The pending works are expected to be completed by FY2026," Jain said.

Unlock 1.0 rules for Andhra Pradesh: What is allowed, what is not

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The Centre has extended Lockdown 5.0 till June 30 and stated that Unlock 1.0 will be undertaken in phases through the month to slowly revive economic activity after the prolonged shut down since March 25 due to coronavirus pandemic.

Particulars of the easing have been left up to the states, especially in containment zones. Here are the details for Andhra Pradesh:

> Lockdown in containment zones extended till June 30

> Phased re-opening or Unlock 1 in non-containment zones to be done as per MHA guidelines

> Fines to be imposed for spitting in public spaces

> Wearing of mask and social distancing made mandatory in public spaces

> Unlock 1: Places of worship, hotels and restaurants re-opened from June 8

> Unlock 1: Hospitality services and shopping malls also re-opened from June 8

> Plans for Phase II: Decision on re-opening educational institutes to be taken in July

> Plans for Phase II: Secondary School Certification (SSC) exams or 10th board exams to be held from July 10

> Plan for Phase III: International air travel, theatres, gymnasiums, swimming pools, entertainment parks, bars, auditoriums, assembly halls, and social, political, sports, entertainment, academic, cultural and religious functions may be allowed after assessment

> Trains, flights and bus services resume – all passengers to be screened, must enrol to Spandana portal, exemptions in case of death of relative, for medical professionals and other officials

> Restrictions on inter-state transport to continue, symptomatic travellers from Delhi, Madhya Pradesh, Rajasthan, Gujarat, Maharashtra and Chennai to be quarantined for seven days and tested again; asymptomatic travellers to be quarantined in native districts and tested after seven days. Those testing positive to be moved to COVID-19 hospitals

> Those above 60 years and below 10 years of age, pregnant, lactating and terminally ill to be home quarantined. Daily visits by ASHA workers.

National Pension System: Here are seven reasons why this savings instrument stands out

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The National Pension System (NPS) is a voluntary-defined contribution pension system in India. NPS like PPF and EPF, is an EEE (Exempt-Exempt-Exempt) instrument in India.

It is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

Here are the 7 benefits of National Pension System (NPS)

Flexibility: Subscribers has control over the choice of asset class (Active or Auto choice) and the Pension Fund Managers (PFMs) or Pension Funds who manages the investments. Subscribers can switch the Pension Fund once in year and the investment option or asset class twice in a year.

Dual benefit of Low Cost and Power of compounding: NPS carries the benefit of being the lowest cost pension product in the world. The overall costs in NPS are the lowest due to economies of scale in operations of the system architecture.

Also, accumulation of the retirement corpus over a period of time gets accelerated on account of the compounding effect and nominal charges borne by the subscriber.

Tax benefits:

(a) On subscriber’s contribution: Own contributions are eligible for tax deduction u/s 80 CCD (1) upto 10% of basic + DA or up to 20% of Gross Income for self-employed within the overall ceiling of Rs. 1.50 Lacs u/s 80 CCE

(b) On employer’s contribution: Contributions made by employer are allowed as deduction u/s 80CCD(2) while computing total income of the employee. However, the amount of deduction is restricted to 14% of salary in case of Central Govt. employees and 10% in any other employees (otherwise 20% of gross total income).

NPS provides additional tax benefit u/s 80CCD 1(B) on contribution in NPS account subject to a maximum investment of Rs 50,000. Thus, investing in NPS, a subscriber can get a tax benefit of Rs 2 lakh (1,50,000+50,000).

Safety (Regulated & Monitored): NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which is established through a statute. PFRDA prescribes the investment norms and monitors the performance of the entire system.

Simple and transparent: NPS is simple to open and operate. A subscriber can open an account with any one of the Point of Presence or through eNPS and get a Permanent Retirement Account Number (PRAN).

 Portable: The NPS account (PRAN) is unique and the subscriber can transfer the pension account across employment and locations while changing his/her employer or on relocation.

Online Access: Subscriber can access and operate the pension account online through web based interface or through the mobile application.

Why RBI policy is now a non-event for the common man

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A closer look at the minutes of the monetary policy committee (MPC) released on Friday shows deepening worries among the members about the lack of monetary policy transmission in the banking system, which makes the monetary policy ineffective.

“For monetary policy actions to transmit fully to the credit market, it is important that banks remain well capitalised. Only banks with strong balance sheets could be expected to support lending activity as and when credit demand picks up,” said Janak Raj, one of the MPC panel members.

India’s banking system is dominated by state-run banks which control 60 percent of the assets. Government, the majority stakeholder in these banks, has not allocated any capital this fiscal year for these banks. Banks require capital mainly for two reasons.

To set aside money against risky loans (provisions) and to lend afresh. Chetan Ghate, another MPC member, too has clearly said that rate cuts do not work unless banks restart lending.

“For rate cuts to work, banks have to lend. Despite the large number of steps taken to improve the liquidity and functioning of credit markets, as of April 24 (the most recent data available), non-food credit growth on a y-o-y basis was at 6.5 percent on May 8, 2020, lower than 7.2 per cent on April 10, 2020,” Ghate said.

In effect, the MPC members have sent a clear signal to the government on the recapitalisation issue of PSBs.

Capital is not the only worry. Lack of demand on the ground is a bigger problem. Companies do not have the confidence to borrow more in a scenario where consumer demand is low.

The recent RBI consumer surveys point to a sharp fall in consumer sentiments. How can the demand situation improve? Monetary policy has only limited tools available to address the demand problem. Economists, for long, have pointed out that fiscal measures should be aimed at demand creation on the ground. This is absent so far.

Warning on growth situation

Lack of monetary transmission is a bigger worry in the context of sharp slowdown in economic growth. The RBI top brass has used strong words to describe the growth situation. For instance, governor Shaktikanta Das said the growth outlook has deteriorated sharply.

“Economic activity, however, is expected to contract in the first half of the year before recovering gradually in the second half of 2020-21 on the back of various fiscal, monetary and liquidity measures undertaken in the recent period,” said Das.

“Overall, the GDP growth in 2020-21 is estimated to remain in negative territory. The pace of recovery will be contingent upon the containment of the pandemic and how quickly social distancing/lockdown measures are phased out,” Das said.

Overall, this is the second statement from the governor on likely contraction in the economic growth due to Covid-19. In his last monetary policy statement Das first suggested that growth is likely to remain negative this year. “Given all these uncertainties, GDP growth in 2020-21 is estimated to remain in negative territory, with some pick-up in growth impulses from H2: 2020-21 onwards,” Das said.

Das committed an accommodative policy going ahead. “I also vote for persevering with the accommodative stance of monetary policy,” the governor said. Not just Das, his deputy Michael Patra too have flagged major threats to growth on account of pandemic.

Patra, who is in charge of monetary policy at the central bank, said: “My view is that the damage is so deep and extensive that India’s potential output has been pushed down, and it will take years to repair,” Patra said.

“The MPC has decided to remain accommodative as long as it is necessary to revive growth and mitigate the fallout of COVID-19.,” Patra said.

The MPC has reassured the government that it is willing to cut rates further if the situation warrants. But for these rate cuts to reflect on the ground, government needs to make sure banks are well capitalised. According to a BofA Securities report, Government-owned banks’ non-performing assets (NPA) could go up by 2-4 percent of the credit in the present economic environment. This, BofA says, will result in a recapitalisation requirement of $7-15 billion (Rs 1.14 lakh crore at the upper end).

How can a cash-starved government fund these banks? With revenues falling short of expectations and disinvestment not happening, the government is already walking a tight rope on fiscal discipline (expected around 5.5 percent this year).

The decision to borrow Rs 4.2 lakh crore additional itself was part of an emergency measure to cover the likely revenue losses. But PSB’s capital requirement cannot be ignored whether it happens through recap bonds or, as BofA suggests, by tapping RBI’s revaluation reserves.

If banks are reluctant to pass on the rate cuts to the end borrower, monetary policy actions, no matter how big is the quantum of the rate cut, do not have much impact. Till banks start lending,  RBI policy is a non-event for common man.

GST Council to meet on June 12

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The GST Council is scheduled to meet on June 12 and likely to discuss the impact of the COVID-19 pandemic on tax revenues, sources said. The 40th meeting of the GST Council, headed by Finance Minister Nirmala Sitharaman and comprising state counterparts, will be held via video conferencing.

The meeting would discuss the impact of the pandemic on revenues of the Centre and states and ways to bridge the revenue gap, sources said.

Faced with dismal collection and extended deadline for filing returns, the government has refrained from releasing the monthly GST revenue collection figures for the months of April and May.

The Council will also discuss ways to garner funds to compensate states for the revenue loss due to Goods and Services Tax (GST) implementation.

In the previous council meeting on March 14, 2020, Sitharaman had said that the Centre will look into the legality of GST Council borrowing from market to meet the compensation requirements.

With states raising the issue of shortfall in compensation kitty, there were discussions on resorting to market borrowing to meet the revenue guarantee to states.

Under GST law, states were guaranteed to be paid for any loss of revenue in the first five years of the GST implementation from July 1, 2017. The shortfall is calculated assuming a 14 per cent annual growth in GST collections by states over the base year of 2015-16.

Under the GST structure, taxes are levied under 5, 12, 18 and 28 per cent slabs. On top of the highest tax slab, a cess is levied on luxury, sin and demerit goods and the proceeds from the same are used to compensate states for any revenue loss.

The Council would also discuss waiver of late fees for non-filing of GST returns for the period August 2017 to January 2020.

Only 5% Asia Pacific infra firms highly exposed to COVID-19 disruptions: Moody's

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Barely 5 percent of the rated project and infrastructure companies in Asia Pacific have high exposure to coronavirus disruptions, Moody's Investor Service said on Wednesday. Pressure has eased for Chinese toll roads, while a small number of utilities face moderate exposure, it said.

A high proportion (67 percent) of rated project and infrastructure companies in Asia Pacific continue to have low exposure to the coronavirus-related disruptions, supported by their essential nature and predictable cashflows, Moody's Investors Service said in a statement.

“The number of companies with high exposure has reduced in recent months, particulary the Chinese toll road sector following the end of the toll-free period and with recovering traffic volumes,” said Arnon Musiker, senior vice president and manager at Moody's.

Airports now make up most of the high exposure category, he said.

Whereas Moody's in April estimated 9 percent of project and infrastructure companies had high exposure to coronavirus disruptions, this number has now declined to 5 percent.

"On the other hand, a small number of power utilities now have moderate exposure to coronavirus disruption, given rising pressure from falling power prices and lower demand, which is only partly offset by lower fuel costs," the statement said.

Following the reclassification of these toll roads and utilities, the number of companies with moderate exposure has increased to 28 percent from 23 percent in April.

“Moreover, a limited number of projects with exposure to commodity risk – particularly energy-related – also face rising challenges following the recent material fall in oil, gas and coal prices,” Musiker said.

Still, the majority – 67 percent – of companies face low exposure, and include regulated utilities, projects and public-private partnerships, the statement said adding, this risk exposure for regulated networks remains low notwithstanding temporary tariff relief measures instituted by certain companies, given their temporary nature and immaterial effect on metrics.

Q4 GDP numbers on expected lines but lockdown pain yet to be seen: Experts

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The Indian economy grew at 3.1 percent in March quarter of FY20 and the full-year growth came in at 4.2 percent against 6.1 percent in FY19.

Experts said the numbers are on expected lines and the full impact of lockdown will be felt in the coming quarters.

"GDP growth rate for Q4FY20 is in the expected line as growth was moving in a downward trajectory. The impact of COVID was limited in the last quarter of FY20, though the slowdown in global economic activities affected India as well," Deepthi Mathew, Economist at Geojit Financial Services, told Moneycontrol.

Experts feel the data could be revised given more than a week of lockdown in March. The GDP numbers for Q1, Q2 and Q3 of FY20 have already been revised downwards. The Q3FY20 GDP was revised to 4.1 percent (from 4.7 percent.

The nationwide lockdown in India started on March 25 and currently we are in the lockdown 4.0.

"The statutory deadline extension for financial returns hit data flow to calculate GDP. Hence quarterly and annual GDP estimates of FY20 is likely to undergo revision," a Ministry of Statistics and Programme Implementation statement said.

"The Q4 GDP data looks much better but there could have been some data problem given the lockdown started in last week of March. So revision in numbers can't be ruled out. It is too early to conclude the impact of lockdown on economy," Dharmakirti Joshi, Chief Economist at CRISIL, told CNBC-TV18.

"My hunch is that exports contracted by 35 percent, auto sales were down by 45 percent, which indicated that industrial activity was getting impacted in March, aviation was also shut. So the data may not have captured the lockdown period data," Joshi said.

The gross value added (GVA) grew 3 percent in March quarter 2020, while the full year (FY20) growth was 3.9 percent against 6 percent in FY19.

The Q4 growth was supported by agriculture which grew 5.9 percent (against 3.6 percent QoQ and 1.6 percent YoY), and mining which showed growth at 5.2 percent (against 2.2 percent QoQ and (-4.8) percent YoY).

"Agriculture numbers are definitely good and are also going to be good numbers given the strong rabi harvest numbers. So agri become a hope for FY21," Joshi said.

Private Consumption Expenditure growth in Q4 dipped to 2.7 percent compared to 6.6 percent in previous quarter and Gross Fixed Capital Formation growth contracted further to (-6.5) percent against (-5.2) percent on sequential basis, but Government Final Consumption Expenditure grew to 13.6 percent against 13.4 percent QoQ.

"The private consumption expenditure falling is not surprising, infact it already showed deceleration. Gross Fixed Capital Formation (GFCF) was contracting even in earlier two quarters and this was the third quarter where contraction continued. Given the headwinds facing by India, we see deeper contraction in GFCF data," Anubhuti Sahay, Head of South Asia Eco Research at Standard Chartered Bank told CNBC-TV18.

Dharmakirti Joshi also feels GFCF will go down further. "Agri, mining will be saviours, but are not enough to offset the impact which is seen in other sectors."

Indranil Pan of IDFC First Bank said given significant contraction in revenue, the government expenditure will not hold on same levels if private consumption expenditure continues to fall in FY21.

Hence experts expect the double digit contraction in first quarter FY21 GDP, but as there could be some improvement in economic activity after easing lockdown measures from May onwards, the full year degrowth could be in single digit.

"These are starting points, the data captured only one week of lockdown, so the pain is ahead definitely in Q1FY21 which will come out later in the year. We see 35 percent degrowth in Q1FY21 GDP due to already tepid growth in economy and lockdown for more than 2 months," Anubhuti Sahay said.

"India could degrew 4% in FY21 as once the recovery starts, we should see some improvement in numbers on May onwards due to some relaxation from lockdown," she added.

Joshi also said, "My broad sense is that 2019-20 like story will be played out in FY21 as well but would be much deeper."

Indranil Pan, the Group Economist at IDFC FIRST Bank expects a contraction 14-15 percent in Q1FY21 GDP and (-6.4) percent for FY21 due to stalled economy for two-and-half-month by COVID-19-led lockdown.

"Trajectory was anyway on downwards during COVID. Therefore there is definitely some headwinds on the structural front. Health problem will have significant impact," he said.

Here is what other experts said:

Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank

“Expectedly, the 4QFY21 GDP slowed down across manufacturing, construction and trade hotels, partly reflecting the sudden halt in economic activity led by the COVID-related response. Probable, some data gaps could also have made the data patchy. While the slowdown in economy was already underway, the COVID-19 related disruptions has further exaggerated the issue. We expect the 1QFY21 to record a sharp contraction of over 14 percent, with only a gradual recovery thereafter. For the year, we continue to expect contraction in GDP (over 5 percent). Accordingly, expansionary fiscal and monetary response will have to continue to aid the economy.”

Joseph Thomas, Head of Research - Emkay Wealth Management

The sluggishness in economic growth which was a feature of the numbers in the Q2 and Q3 of the last financial year, manifested itself once again in the Q4 growth rate falling further to 3.10 percent. This number fully reflects the slowdown which the economy was going through in the last two years, and it also amply highlights the importance of a demand-led recovery for sustainable future growth. This number is more important than a quarterly number. Because this number would be the base against which the impact of the lockdown and consequent demand destruction, loss of productivity and employment would mapped. What could be the fall from this level us the question that would be asked. It goes without saying that the number for Q1 of the current financial year will be much lower bordering on the negative as we get the first estimates after a month. That the core sector output contracted by 38 percent in April is an indicator of the dent which the lockdown is likely to bring forth in economic activity and the resultant numbers.

B Gopkumar, MD & CEO at Axis Securities

GDP growth at 3.1 percent is not a major surprise considering the challenges that started in March 2020 and Q1FY21 will be even weaker. This information is already factored by the market and now focus has shifted to opening of economy. The pace at which demand will be restored to normalcy is critical. There have been some encouraging signs in consumer staples, digital businesses and Pharmaceuticals. However, large ticket consumer discretionary revival will take time. Overall, businesses have drawn plans to deal with the situation and economy will improve from hereon and demand will pick up with each passing month.

Dhiraj Relli, MD & CEO at HDFC Securities

The Q4FY20 GDP number came in better than expected at 3.1 percent (11-year low) though the downward revision in the previous three quarters takes away some of that relief. The poor data on growth of India’s eight infrastructure sectors contracting by a record 38.1 percent in April led by cement, steel, electricity and coal was partly on expected lines. However this data does not portend well for Q1FY21 unless we see a fast and complete lifting of lockout with safeguards in place.

The fact that Manufacturing sector has grown at 0 percent for the whole of FY20 versus 5.7 percent in previous year highlights the extent of issues in that sector and prompts faster and thorough measures to kickstart manufacturing given that the first two months of FY21 are washouts and job creation remains a top priority in the current times. Construction is the other sector needing immediate attention. Agriculture could do well even in FY21 after growing 4 percent in FY20 and lead the sectoral growth in FY21, contrary to its negative contribution in all earlier years of negative GDP growth.

Deepthi Mathew, Economist at Geojit Financial Services

GDP data for Q1FY21 would slip to the negative territory, with the impact of COVID on the economy fully captured.

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