Indian economy to shrink 4.7 pc in FY21, inflation likely at 5 pc: Motilal Oswal

India's real and nominal GDP could contract by 4.7 and 3.5 per cent this year due to the Covid-19 crisis, Motilal Oswal Financial Services Ltd (MOFSL) said on Friday.

In its report Ecoscope -- India's Quarterly Economic Outlook, it said this will mark their first contraction in 41 and 65 years.

With the CPI basket heavily influenced by food items, the headline inflation is expected to average 5 per cent in FY21, slightly higher than 4.8 per cent last year. The core inflation, however, could ease from 4 to 2.3 per cent this year.

With weak global and domestic economic activity and the crash in crude oil prices, MOFSL believes the net impact on India's external account will be positive. Consequently, it 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 rupee to remain stable at 74 to 75 against the US dollar and average 74.8 in FY21.

MOFSL believes that real GDP could contract by 20 per cent year-on-year in Q1 FY21, 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 per cent in Q3 FY21, followed by 4 to 5 per cent growth in Q4 FY21.

Consequently, MOFSL expects the Indian economy to shrink by 4.7 per cent year-on-year in FY21, marking its first contraction in four decades and comparable to the post-Independence worst decline of 5.2 per cent in FY80.

MOFSL said that corporate tax and GST (goods and services tax) receipts could be the worst-affected this year, as losses could be offset in the former. While GST is not levied on essentials, it is much higher on luxury items.

Accordingly, corporate taxes could decline by 30 per cent -- from Rs 5.6 lakh crore to Rs 3.9 lakh crore (the lowest in 8 years) while GST receipts are expected to fall by 20 per cent -- from Rs 6 lakh crore last year to Rs 4.7 lakh crore in FY21.

( With inputs from ANI )