Indian economy is likely to rebound with an 8.9 per cent growth in the fiscal year beginning April 2021 after economic activity showed significant improvement in the last quarter, IHS Markit said on Friday.

The National Statistical Organisation (NSO) on Thursday predicted that the economy will contract 7.7 per cent in the current financial year ending in March, the worst performance in four decades.

“The Indian economy suffered a severe recession in 2020,” IHS Markit said in a note. “The worst contraction occurred during the period from March until August, with the economy having shown a strong rebound in economic activity since September.”

The GDP contracted by a record 23.9 per cent in the April-June quarter following a national lockdown to prevent the spread of the coronavirus. The contraction came down to 7.5 per cent in the September quarter.

“During the fourth quarter of 2020, India’s industrial production and consumption expenditure have shown a rebound.

“October data showed that industrial production grew by 3.6 per cent year-on-year compared with a steep contraction of -55.5 per cent in April 2020,” IHS said.

Stating that there has been a marked improvement in business conditions across the manufacturing sector, it said factory orders increased during December on the back of the loosening of COVID-19 restrictions, strengthening demand and improved market conditions.

Although India faces a vast challenge to vaccinate its population of 1.4 billion people, it is about to commence its COVID-19 vaccination programme.

The Health regulator has approved the Oxford/AstraZeneca vaccine for emergency use.

An important advantage for India is that the Oxford/AstraZeneca vaccine is already being manufactured in the country by the Serum Institute of India, which projects that it will be able to manufacture 100 million COVID-19 vaccine doses per month by April 2021.

“With the Indian economy already showing a significant improvement in domestic economic activity in the fourth quarter of 2020, the outlook is for Indian GDP growth to rebound by 8.9 per cent year-on-year in the 2021-22 fiscal year,” IHS said.

India Ratings & Research said the NSO projections for GDP growth in FY21 mean that the size of the Indian economy is expected to shrink to Rs 134.40 lakh crore in FY21 as against Rs 145.66 lakh crore in FY20.

“From the demand side except government consumption all other components namely private consumption, investment, exports and imports are estimated to contract in FY21,” it said.

Although the headwinds emanating from the COVID-19-related challenges are unlikely to go away till mass vaccination becomes a reality, the rating agency said it expects GDP growth to turn positive in 4QFY21 (January-March) and FY22 GDP to come in at 9.6 per cent.

Arun Singh, Global Chief Economist, Dun & Bradstreet said the first advance estimates of GDP growth for FY21 is a tad lower than the RBI projection of 7.5 per cent contraction but more optimistic than the projections provided by many institutions, global and domestic.

“We expect the final GDP data to be slightly lower than the first advance estimates when the data for the informal economy is included and adjusted,” he said.

While the investment and consumption demand data were expected to register a strong decline, the 5.8 per cent growth in government final consumption expenditure, the lowest since FY15, was not quite anticipated.

“During uncertain times, only the government can propel the multiplier effect in the economy. Hope hinges on the government to increase its spending to revive the private sector sentiment, overall demand and largely private investment,” Singh said. “Thus, in spite of, the stimulus measure announced by the government during the course of the year, expectation of additional measures from the Union Budget remains high.”

Dharmakirti Joshi, Chief Economist, Crisil said only two sectors are above last year’s level — agriculture and electricity, gas and water supply — and as expected, services are the worst hit.

“With industry seeing some recovery in the second half, the upcoming Budget will need to extend some support to the services sector, which continues to lag,” he said.