GDP o Bounce Back To 10.4% YoY in FY22: India Ratings

India Ratings and Research said it estimates the gross domestic product (GDP) growth to bounce back to 10.4% year on year (YoY) in FY22, driven by the base effect. Although the recovery in FY22 on a YoY basis will be V-shaped,

BY Realty Plus
Published - Friday, 12 Feb, 2021

GDP o Bounce Back To 10.4% YoY in FY22: India Ratings

India Ratings and Research said it estimates the gross domestic product (GDP) growth to bounce back to 10.4% year on year (YoY) in FY22, driven by the base effect. Although the recovery in FY22 on a YoY basis will be V-shaped, the size of the GDP will barely surpass the level attained in FY20 and will be 10.6% lower than the trend value. The impact of COVID-19 pandemic and lockdown on the economy, although subsiding, will continue to delay the normalisation of economic activities in the contact-intensive sectors till the mass vaccination/herd immunity becomes a reality. In the FY22 union budget, the government has set aside its fiscal conservatism decided to provide the much-needed support to the demand side of the economy, which had been missing in the Atmanirbhar package announced earlier. India Ratings, therefore, expects the government final consumption expenditure to grow 10.1% YoY in FY22. It said that the private final consumption expenditure is expected to grow by 11.2% in FY22 led by pharma, healthcare, and telecom. Ind-Ra expects investments as measured by gross fixed capital formation to grow at 9.4% YoY in FY22, ably supported by government CAPEX which is budgeted to grow at 26.2% YoY in FY22. Despite this renewed focus by the government on CAPEX, the size of gross fixed capital formation in FY22 will still be 26.3% lower than the trend level. Further, Ind-Ra expects the industrial and services sector to grow at 11.5% and 11.4% YoY, respectively, in FY22. On the monetary policy front, the RBI through various policy measures and liquidity injection has been quite successful in preserving the financial stability of the economy. Ind-Ra expects the retail and wholesale inflation to come in at 4.3% and 2.8%, respectively, in FY22. Ind-Ra also said that it expects the central bank to maintain an accommodative policy stance and will keep a pause on its policy rate. The fiscal arithmetic of the FY22 budget is more convincing than earlier years. Ind-Ra, therefore, believes a fiscal deficit of 6.8% of GDP in FY22 is achievable. However, like FY21, this number hinges critically on the government achieving disinvestment target of INR1.75 trillion in FY22.