Ind-Ra lowers FY22 GDP growth forecast to 9.6% due to Covid 2.0

New Delhi: India Ratings and Research (Ind-Ra) has said its earlier estimate of gross domestic product (GDP) growth at 10.1 per cent for the current financial year (FY22) is unlikely to hold due to the speed and scale of Covid 2.0. It now expects GDP growth to come in at 9.6 per cent in FY22. This is however contingent upon India vaccinating its entire adult population by December 31. Average daily vaccinations during June 1 to 20 totalled 32 lakh which rose to 87.3 lakh on June 21. 

If the pace of vaccination is maintained close to the June 21 level, said Ind-Ra, then India will be able to achieve the 9.6 per cent target. "In case the vaccination target gets delayed by three months either due to slow pace of vaccination or non-availability of vaccines, then the FY22 GDP growth will slip further down to 9.1 per cent."

The Indian economy was witnessing a consumption slowdown even before the Covid-19 pandemic hit it. Private final consumption expenditure (PFCE) growth declined to 2 per cent in 4Q FY20 from 11.2 per cent in 3Q FY17.

Covid 1.0 aggravated it as the lockdown had a telling impact on jobs, livelihoods and household budget. PFCE collapsed to negative 26.2 per cent in 1Q FY21.

Since then it has recovered and Ind-Ra expects to gather pace this fiscal. However, it has received push back 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 hinterlands as well," said Ind-Ra expecting PFCE growth to come in at 10.8 per cent.

There no meaningful investment revival is possible before FY23 because manufacturing is still saddled with excess capacity, domestic demand is weak and balance sheet of Indian infra companies continues to be stretched.

A near-normal monsoon this year means a third consecutive year of good agricultural production and incomes.

Although agricultural income now constitutes only about one-third of rural income, given its backward forward linkage with several non-agricultural rural activities, together they provide livelihoods to a large portion of the rural population.

Ind-Ra expects agricultural growth to come in at 3 per cent in FY22. On the other hand, the industrial sector is expected to grow at 10.9 per cent year-on-year because unlike Covid 1.0 industries were allowed to remain operational during Covid 2.0 lockdowns.

Services, especially its segments like aviation, tourism, hotels sports, entertainment and hospitality are still weathering the storm, is expected to grow at 10.4 per cent again chiefly due to the low base of last year.

Even as the GDP growth continues to be a major concern for policymakers, said Ind-Ra, worrying signs have emerged on the inflation front. Also Read: 

Wholesale and retail inflation in May came in at 12.5 per cent and 6.3 per cent. It is still too early to believe that the retail inflation will remain in excess of 6 per cent on a sustained basis, given the high base of last year.

Ind-Ra, therefore, expects average retail and wholesale inflation to come in at 5.5 per cent and 6.6 per cent respectively in FY22. Also Read: 7th Pay Commission: 60 lakh pensioners to get pension slips via WhatsApp, email