India Ratings & Research (Ind-Ra) on Friday lowered growth projection to 9.6 per cent from its previous forecast of 10.1 per cent for fiscal year 2021-22 (FY 22).

This is the base scenario and the agency clarified that this is contingent upon India vaccinating its entire adult population by 31 December 2021. Average daily vaccinations during 1-20 June 2021 was 3.2 million, which rose to 8.73 million on 21 June 2021. If the pace of vaccination is maintained close to the 21 June 2021 level, then India will be able to achieve the aforesaid 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 agency said giving an alternative scenario beside the base one. Base forecast of 9.6 per cent is a notch above S&P’s and RBI’s estimate of 9.5 per cent. However, it is higher than Moody’s forecast of 9.3 per cent and close to CRISIL’s range of 8.2-9.8 per cent. Other agencies have also cut the forecast to a single digit.

PFCE growth

The agency said that the Indian economy was witnessing a consumption slowdown even before the Covid-19 pandemic hit it. Private final consumption expenditure (PFCE) growth had declined to 2 per cent in January-March quarter of fiscal year 2019-20 from 11.2 per cent in October-December quarter of 2016-17. First phase of pandemic aggravated it as the lockdown had a telling impact on jobs, livelihoods and household budget. PFCE collapsed to negative 26.2 per cent in April-June quarter of FY21. “Since then it has recovered and was expected 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 the rural areas as Covid 2.0 unlike Covid 1.0 has spread to the rural areas as well. Ind-Ra therefore expects PFCE growth to come in at 10.8 per cent (in alternate scenario: 9.8 per cent) in FY22, it said.

The agency expects agriculture to grow at 3 per cent, while industrial growth could bn 10.9 per cent (alternate scenario: 10.2 per cent) in FY22. “Services, especially in segments such as aviation, tourism, hotels sports, entertainment and hospitality are still weathering the storm, and are expected to grow at 10.4 per cent (alternate scenario: 9.6 per cent) in FY22, again chiefly due to the low base of last year,” it said.

The agency noted worrying signs on account of high inflation. Wholesale and retail inflation in May 2021 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 the average retail and wholesale inflation to come in at 5.5 per cent and 6.6 per cent (alternate scenario: 5.8 per cent, 6.7 per cent), respectively, in FY22.

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