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ICRA projects India's FY22 GDP growth at 8.5%

BusinessToday.In     June 11, 2021

Credit rating agency ICRA Ratings projected India's gross domestic product (GDP) to grow at 8.5 per cent in FY2021-22. "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.

ICRA said that if the vaccine coverage is accelerated following the re-centralised procurement policy, then the GDP growth could be as high as 9.5 per cent, with a widening upside in Q3 and Q4 of FY22.

The agency expects the gross value added (GVA) at basic prices (at constant 2011-12 prices) to grow at 7.3 per cent in FY22.

The Reserve Bank of India had projected real GDP growth at 9.5 per cent in 2021-22. In FY21, India's GDP contracted 7.3 per cent.

ICRA expects GDP growth to exceed GVA growth by 120 bps, based on expectations related to the value of taxes on products and subsidies on products in FY22. It has taken into account the likely higher outgo towards food subsidies by the government in FY2022, relative to the budgeted level, following the decision to provide free food grains in May-November 2021. The agency has excluded the impact of the release of food subsidy arrears in FY2021, based on the clarification provided by the National Statistical Office (NSO).

The rating agency said that it expects a prolonged negative impact of the second wave on consumer sentiment and demand, with healthcare and fuel expenses eating into disposable income.

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.

Also read: World Bank cuts India's FY22 GDP growth drastically to 8.3%

Also read: CRISIL cuts India's GDP forecast to 9.5% from 11%

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