India's growth next fiscal will be story of two halves: CRISIL

12 Mar '21

3 min read

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Indian rating agency CRISIL expects the country’s gross domestic product (GDP) growth to rebound to 11 per cent in fiscal 2021-22 after an estimated 8 per cent contraction this fiscal, as four drivers—people learning to live with the new normal, flattening of the COVID-19 affliction curve, the vaccine rollout and investment-focused government spending—converge.

However, as in this fiscal, the pace of growth will differ in the first and second halves next fiscal. While the first half next fiscal will benefit optically because of low-base effect, the second half would see a more broad-based pick-up in economic activity owing to a commodity price lift, large-scale vaccinations and likely stronger global growth, CRISIL said in a press release.

“The journey from the pervasive darkness cast by an unprecedented pandemic to the beginnings of a clawback has not been easy. Policymakers and regulators have primarily facilitated the revival. India’s medium-term growth now hinges on a kickstart of the investment cycle. There are early positive signs, powered by government spending such as through the National Infrastructure Pipeline, demand-driven capex, and the centre’s production-linked incentive (PLI) scheme,” managing director and chief executive officer of CRISIL Ashu Suyash said.

But recovery won’t be easy, with scars of the pandemic deep for small businesses and the urban poor; the rural economy has been more resilient versus urban, and services are lagging manufacturing in recovery. Trade has also normalised faster than rest of the economy, with both exports and imports scaling pre-pandemic levels.

While exports are recovering well for large industries, and agriculture and allied sectors, they remain weak for labour-intensive, small-enterprise driven segments such as gems and jewellery, garments, and leather products because of their discretionary nature, CRISIL said.

Corporate revenue growth has surprised with a V-shaped recovery in the first nine months of this fiscal by cresting three tailwinds: resilience in exports of information technology services and pharmaceuticals, the commodity upcycle, and price hikes that offset volume declines in automobiles.

Next fiscal, revenue should grow 15-16 per cent, led by volume recovery across sectors on two consecutive low-base years and higher investment spend by the government, especially in core infrastructure segments of roads, railways, urban infrastructure. Shorn of the optical base-effect, revenue will be only 8-9 per cent higher than in fiscal 2018-19.

In the context, medium-term prospects of the economy hinge critically on revival of the investment cycle, which has been one of the biggest impediments to structural growth for many years now. The recent pick-up in public investment provides a glimmer of hope.

CRISIL Research’s analysis of the PLI scheme indicates potential incremental revenue generation of ₹35-40 lakh crore over the coming five years across 14 covered sectors, aided by ₹2-2.7 lakh crore capex in next 24-30 months.

The incentive-to-capex ratio is particularly attractive at more than 3.5 times for mobile phones, electronics, telecom equipment, and information technology hardware where our local manufacturing base is relatively low.

Both trends will drive a 45-50 per cent surge in industrial investments in the next fiscal after a fall of 35 per cent this fiscal. After this surge, investment growth will moderate to 7 per cent through fiscal 2024-25.

Fibre2Fashion News Desk (DS)

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