Economy to contract by 1.1 to 13.6 pc in FY21: KPMG

The Indian economy is expected to contract in the range of 1.1 to 13.6 per cent in FY21 over FY20 under different scenarios of shocks to consumption, investment and exports triggered by the coronavirus outbreak and the associated lockdowns, professional services firm KPMG said on Friday.

While the fall in gross value added (GVA) at an economy level is driven by the declining output of all major sectors, some sectors are expected to shrink more, thereby contributing more to this fall at a macro-level. Of such sectors, wholesale and retail trade could be the hardest sector hit followed by real estate and construction, KPMG said in its report titled ‘The impact of COVID-19 pandemic on potential income and employment in India.’

These sectors (trade, real estate, construction, services etc.) largely cater to the non-essential products/services or were significantly impacted by social distancing and hence, were severely impacted during the lockdown.

Even after lockdowns have been lifted, the demand of such sectors is likely to remain subdued due to low economic growth and business sentiments and social distancing measures.

Since these sectors also contribute largely to the national GVA, said the report, even a small decline in output of these sectors affects the economy significantly.

The decline in GVA of these sectors has been different under the different scenarios as the annual impact of the pandemic could vary depending upon the length of non-essential business closures and the spread of the virus.

Coming to employment, the series of lockdowns along with social distancing measures have led to a significant loss of jobs in the economy.

Construction, the second largest employer in the country (after agriculture) with over 15 per cent of the labour force, is expected to contribute significantly to the national unemployment figures followed by wholesale and retail trade sector, real estate, and hotel and restaurants.

The decline in employment in these sectors is driven by both demand as well as supply factors, said the KPMG report.

In some areas, the reduced economic activity of various sectors coupled with lockdowns reduced labour demand, while in other areas the supply of labour was constrained due to labour migration to villages.

Other sectors that are estimated to witness job losses include aviation, automobile, tourism and entertainment.