India Ratings and Research (Ind-Ra) has revised GDP growth rate to 9.4 per cent for FY22 from its earlier estimate of 9.6 per cent. The agency said that its earlier estimates were based on India’s vaccination progress. It had stated that if India is able to vaccinate everyone over 18 years of age by December 31, then the GDP growth would touch 9.6 per cent. “Going by the pace of vaccination, it is now almost certain that India will not be able to vaccinate its entire adult population by 31 December 2021,” stated the agency, revising the growth estimate to 9.4 per cent.
The agency estimated that 5.2 million doses need to be administered daily from August 18 onwards to fully vaccinate more than 88 per cent of the adult population as well as administer single doses to the rest by March 31.
It said that the estimate revision to 9.4 per cent comes on the back of a few factors: 1. As COVID-19 ebbs, several high frequency indicators are showing faster-than-expected rebound, 2. Revival of Southwest monsoon indicates a significant pick-up of kharif sowing, 3. Q1 FY22 saw a significant turnaround of exports volume and growth.
Ind-Ra said that out of four demand-side growth drivers including private final consumption expenditure (PFCE), government final consumption expenditure (GFCE), gross fixed capital formation (GFCF) and exports, only GFCE has shown a decent growth, averaging at 5.7 per cent during FY19-FY21.
Private final consumption expenditure was expected to maintain the momentum after things turned positive in Q4 FY21 but the second wave pushed all progress back. Ind-Ra expects PFCE growth to come in at 10.4 percent Y-o-Y in FY22 compared with 10.8 per cent projected earlier.
PFCE growth, although double-digit, is only 0.3 per cent higher than FY20. “There are several reasons for that. Unlike COVID 1.0, which was largely an urban phenomenon, COVID 2.0 spread to rural areas as well. Even if the agricultural output/income remains intact in view of the progress of monsoon so far, rural households are unlikely to loosen their purse strings in view of the COVID-19 induced rise and/or a likely rise in the health expenditure as also the uncertainty/insecurity associated with the likely future waves of COVID-19,” stated the agency. Disposable income of the rural population has been severely impacted by the second wave.
The rating agency said that the consumption demand story does not seem to be encouraging even from a medium-term perspective. “The household saving to GDP ratio declined to 19.6 per cent and the personal loan to GDP ratio increased to 12.5 per cent in FY20 (FY12: 23.6 per cent; 9.0 per cent). This suggests that a part of the consumption demand witnessed during FY12-FY20 was leveraged/debt funded. There is nothing wrong with leveraged demand so long as the anticipated income growth is being realised and it is taking care of debt servicing. However, the decline in household saving to GDP ratio over the years suggests that this has not been the case and households have been sustaining their consumption needs by both dipping into their savings and incurring debt,” stated Ind-Ra.
Only exports appeared to be a bright spot as Q1 FY22 saw a revival of volume and growth backed by a favourable global trade outlook. Ind-Ra expects exports growth of goods and services to grow at 16.0 per cent Y-o-Y in FY22.
It added that fiscal support in the form of government expenditure is likely to continue. “GFCE growth averaged 7.1 per cent during FY16-FY21 and is projected to grow at 7.5 per cent in FY22. Ind-Ra estimates investments as measured by GFCF to grow 9.1 per cent Y-o-Y in FY22. However, it will be 2.7 per cent lower than FY20,” it said.
Ind-Ra said that investments, especially private investment, has been down and out for the past few years and is unlikely to turn around soon. COVID-19 set-backs, excess capacity in the manufacturing sector and weak domestic demand have impacted investments.
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