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India's baseline real GDP to expand by 8.5% in FY2022: Icra Ratings
11 Jun '21
3 min read
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With the number of fresh COVID-19 cases declining and restrictions getting eased, India’s gross domestic product (GDP) will grow at 8.5 per cent in fiscal 2021-22, according to Icra Ratings, which expects the gross value added (GVA) at basic prices (at constant 2011-12 prices) to grow at 7.3 per cent this fiscal. In 2020-21, the country’s GDP contracted by 7.3 per cent.
The credit rating agency said if vaccine coverage is accelerated following the re-centralised procurement policy, the GDP expansion in this fiscal may be as high as 9.5 per cent, with a widening upside in the third and fourth quarters.
Last week, the Reserve Bank of India (RBI) had projected real GDP growth at 9.5 per cent for fiscal 2021-22.
“The impact of the second wave of COVID-19 and the ensuing state-wise restrictions was seen across a variety of high frequency indicators in April-May 2021. Now that the fresh cases have moderated, and restrictions are being eased, we have placed our baseline GDP growth forecast for FY2022 at 8.5 per cent,” ICRA chief economist Aditi Nayar said in a press release.
The monthly pattern of subsidy release by the government cannot be ascertained at present, Nayar said adding, “Therefore, we caution that the quarterly trend in GDP growth could differ from our baseline assumption (+14.9 per cent in Q1, +8 per cent in Q2, +5.6 per cent in Q3 and +7 per cent in Q4 of FY2022), based on when the subsidy pay-out is booked.”
Icra expects a prolonged negative impact of the second wave on consumer sentiment and demand, with healthcare and fuel expenses eating into disposable income, and less pent-up/replacement demand in FY2022 relative to FY2021.
Notwithstanding the expectation of a normal monsoon buffering the prospects for crop output and less reverse migration in 2021 compared to 2020, it expects the combination of the sharp rise in rural infections, loss of employment as well as remittances to weaken the rural sentiment and demand.
“After the satiation of the pent-up demand seen during the festive season in 2020, purchases of consumer durables may be restricted, which would impact capacity utilisation in FY2022,” it said.
It said even as the second wave of COVID-19 infections in the country has dampened the near-term outlook for the Indian economy, vaccine optimism has led global commodity prices to soar.
The agency expects subdued domestic demand to constrain pricing power, squeezing margins in many sectors.
The credit rating agency said if vaccine coverage is accelerated following the re-centralised procurement policy, the GDP expansion in this fiscal may be as high as 9.5 per cent, with a widening upside in the third and fourth quarters.
Last week, the Reserve Bank of India (RBI) had projected real GDP growth at 9.5 per cent for fiscal 2021-22.
“The impact of the second wave of COVID-19 and the ensuing state-wise restrictions was seen across a variety of high frequency indicators in April-May 2021. Now that the fresh cases have moderated, and restrictions are being eased, we have placed our baseline GDP growth forecast for FY2022 at 8.5 per cent,” ICRA chief economist Aditi Nayar said in a press release.
The monthly pattern of subsidy release by the government cannot be ascertained at present, Nayar said adding, “Therefore, we caution that the quarterly trend in GDP growth could differ from our baseline assumption (+14.9 per cent in Q1, +8 per cent in Q2, +5.6 per cent in Q3 and +7 per cent in Q4 of FY2022), based on when the subsidy pay-out is booked.”
Icra expects a prolonged negative impact of the second wave on consumer sentiment and demand, with healthcare and fuel expenses eating into disposable income, and less pent-up/replacement demand in FY2022 relative to FY2021.
Notwithstanding the expectation of a normal monsoon buffering the prospects for crop output and less reverse migration in 2021 compared to 2020, it expects the combination of the sharp rise in rural infections, loss of employment as well as remittances to weaken the rural sentiment and demand.
“After the satiation of the pent-up demand seen during the festive season in 2020, purchases of consumer durables may be restricted, which would impact capacity utilisation in FY2022,” it said.
It said even as the second wave of COVID-19 infections in the country has dampened the near-term outlook for the Indian economy, vaccine optimism has led global commodity prices to soar.
The agency expects subdued domestic demand to constrain pricing power, squeezing margins in many sectors.
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