Japanese financial holding company Nomura has projected India's GDP growth at 10.4% YoY in FY22 aided by faster COVID-19 vaccinations form August, steady global growth and easy financial conditions, with a severe third wave a key downside risk.
In its 'Asia Insights' report, the company said the monthly Nomura India Normalization Index (NINI) showed that following a shallow dent in May, due to the second-wave lockdowns, economic conditions in June have recovered to levels similar to April.
It added that consumption made a strong comeback in the month of June, whereas investment suffered a comparatively smaller hit during the second wave of the COVID-19 pandemic.
The report further stated that "after May's dip, June's activity met April's and growth has recovered back to pre-second wave levels."
"The monthly Nomura India Normalization Index (NINI) showed that after a shallow dent in May due to the second wave lockdowns, economic conditions in June have recovered to levels similar to April," Nomura said in its report.
According to the report, "investment, the external and industrial sectors took a comparatively smaller hit during the second wave of the coronavirus, with much of the impact on consumption and services."
As per NINI, the growth indicators did deteriorate in May due to the second wave impact but the damage has been much lesser compared with the first wave.
It added that "growth looks to have rebounded in June, with the economic conditions looking similar to the situation in April, when a handful of states had started considering localised lockdowns."
The report stated that the overall normalization index for consumption rose to 85.1% of peak capacity in June from 51.1% in May and 85.9% in April, according to Nomura.
Apart from diesel sales, the NINI for sales of passenger cars, tractors, and two-wheelers have returned to April levels, which are closer to pre-pandemic levels of February 2020.
"Ultra-high frequency indicators for July, suggest that despite the sluggish pace of vaccinations, mobility indicators continue to improve," it said.
However, Nomura indicated that, on goods side, GST e-way bills have moderated somewhat in the first half of July, recording 28.2 million vs 29.9 million in H1 June and 29.2 million in H1 April (at the onset of the second wave), and were significantly lower than the pre-second wave level of around 47 million.
"Much of the damage seems to be limited to May and the extent of slowdown has been a fraction of the drag during the first wave. While consumption and services suffered, investment, exports and industry remained relatively resilient," Nomura said.
The Nomura India Composite Leading Indicator (NICLI), which has a one-quarter lead over non-agricultural GDP growth, picked up 99.7 in the third quarter of 2021 from 97.9 in the previous three months and 98 in the first quarter, suggesting that the business cycle remains on rise.
Nomura added that at the next monetary policy committee (MPC) meeting on August 6, it expects the RBI to raise its inflation projection, but reaffirm its accommodative stance to support growth.
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