India\`s FY22 GDP growth forecast lowered to 9.6%

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 19 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.