Industry body PHDCCI expects India's GDP to contract by 7.9 percent in the current financial year and grow by 7.7 percent in 2021-22, assessing that the worst is over and the economy is on the verge of a slow recovery.

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The chamber, however, stated that unemployment remains a key challenge to be addressed by the government.

The PHDCCI drew the conclusions based on its analysis of 25 high-frequency economic indicators which point out that there has been a pickup in business normalization.

However, the unemployment rate still remains a worry as it worsened to 8.3 percent in August from 7.4 percent in July, it said in a report.

"Going ahead, India should focus on moving away from imports from China, divert trade towards friendly economies, build domestic capacities and significantly scale-up indigenous production with a thrust to become self-reliant," PHD Chamber of Commerce and Industry (PHDCCI) said.

It said also that efforts should be made to diversify the portfolio of export products in terms of more countries and also in terms of more products, where India has a core competence.

PHDCCIPresident Sanjay Aggarwal said on the back of various reforms undertaken by the government during the last six months, economic recovery has become visible in the high-frequency indicators.

At this juncture, on the basis of PHDCCI Economic and Business Momentum (EBM) Index, we estimate that the GDP growth will be at around (-) 7.9 percent for the current financial year 2020-21 and 7.7 percent for the next financial year 2021-22, Aggarwal told PTI.

The chamber suggests that the government should prioritize demand creation measures to attain a positive growth trajectory in the third and fourth quarters of the current financial year ending March 2021.

Demand creation will have a significant effect on the enhanced production sentiments of producers, increased investments and employment creation. Investments in the infrastructure will refuel the growth trajectory with increased demand for commodities such as steel, cement and power which in turn will rejuvenate private investments and create new employment opportunities in the country, said Aggarwal.

The chamber observed that while several sectors of the economy will continue to have the after-effects of the pandemic, recent economic data shows that the worst is over and India is on the verge of a slow recovery.