India's December 31 deadline for vaccinating its entire adult population for COVID-19 is crucial to the country achieving an economic (GDP) growth of 9.6 per cent in 2021-22, rating agency India Ratings and Research (IND-Ra) has said.
While Ind-Ra's latest projection of 9.6 per cent GDP growth itself is lower than the 10.1 per cent growth it had previously estimated, the failure to complete adult vaccination would mean growth lowering further to 9.1 per cent, it says.
"Average daily vaccinations during June 1-20 2021 was 3.2 million which rose to 8.73 million on 21 June 2021. If the pace of vaccination is maintained close to the 21 June 2021 level, then India will be able to achieve the aforesaid target," the agency points out.
According to Ind-Ra, the Indian economy was witnessing a consumption slowdown even before the COVID-19 pandemic hit it and it is likely to remain impacted, mostly in rural areas.
"Private final consumption expenditure (PFCE) collapsed to a negative 26.2 per cent in 1QFY21. Since then it has recovered and was expected to gather pace this fiscal. However, it has received pushback from COVID 2.0. The push back to consumption demand is expected to be more pronounced in rural areas as COVID 2.0 unlike COVID 1.0 has spread to rural areas as well. Ind-Ra, therefore, expects PFCE growth to come in at 10.8 per cent in FY22", it says.
If the vaccination is not complete within the deadline set by the government, it could go down to 9.8 per cent too, the agency estimates.
On gross fixed capital formation, Ind-Ra estimates the growth to be 8.9 percent YoY (alternate scenario: 8.1%) in FY22.
Investment activities have been down and out over the past several years for a variety of reasons.
No meaningful investment revival is possible before FY23 because manufacturing is still saddled with excess capacity, domestic demand is weak, and the balance sheet of Indian Infra companies continues to be stretched/leveraged.
"The only silver lining though is the external demand as World Trade Organisation (WTO) expects the volume of world merchandise trade to grow by 8.0 per cent YoY and 4.0 per cent YoY in 2021 and 2022", Ind-Ra notes.
The agency expects agricultural growth to come in at 3.0 per cent in FY22. The industrial sector is expected to grow by 10.9 per cent YoY in FY22 because unlike COVID 1.0, industries were allowed to remain operational during COVID 2.0 lockdowns though with COVID protocols/lower employee headcounts.
Services, especially its segments such as aviation, tourism, hotels, sports, entertainment, and hospitality, are still weathering the storm, and are expected to grow by 10.4 per cent in FY22, again chiefly due to the low base of last year, it said.
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