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A Fitch group company India Ratings & Research (Ind-Ra) on Wednesday estimated Indian economy to be back in the positive zone during January-March quarter (fourth quarter or Q4) of FY21. It has projected a growth of 10.4 per cent for fiscal year FY 22.
GDP growth estimate for the next fiscal is slightly higher than the Budget forecast but lower than the Economic Survey’s, the RBI’s and the IMF’s. While the Budget projected 10 per cent GDP growth rate during FY22, the Survey gave the number as 11 per cent, RBI as 10.5 per cent and IMF at 11.5 per cent. One similarity in all the numbers is double-digit growth during the next fiscal.
Base effect
Ind-Ra feels that FY22’s estimate is primarily driven by the base effect. “The estimate also shows that after recording negative growth during nine months of FY21, GDP growth will finally turn positive at 0.3 per cent in January-March quarter,” the agency said. GDP registered contraction of 23.9 per cent during April-June quarter (Q1), while it was 7.5 per cent during July-September quarter (Q2). GDP number for October-December quarter will be made public during the last week of this month and it is expected to be near zero.
The agency said in theBudget, the government set aside its fiscal conservatism and decided to provide the much-needed support to the demand side of the economy. As a result, it expects the government final consumption expenditure to grow 10.1 per cent year-on-year (yoy) in FY22. Although the private final consumption expenditure was witnessing a slowdown even before Covid-19 induced lockdown, it is expected to grow by 11.2 per cent as against a negative 13.4 per cent during FY21.
Estimates by the agency show that the private final consumption expenditure in FY22 will be 14.2 per cent less than the trend level. It expects investments, as measured by gross fixed capital formation, to grow at 9.4 per cent yoy in FY22, ably supported by government capex which is budgeted to grow at 26.2 per cent yoy. Despite this renewed focus by the government on capex, the size of gross fixed capital formation in FY22 will still be 26.3 per cent lower than the trend level.
Agriculture GVA
Ind-Ra projects the agricultural gross value added to grow 3 per cent in FY22. This is based on the expectations of a normal and spatially well-distributed rainfall in 2021. Although the second advanced estimate of production of food grains for FY21 is still not out, the agency expects the Rabi harvest of 2021 to be good. The area under Rabi sowing at 651.9 lakh hectare by 15 January 2021 is 1.6 per cent y-o-y higher.
The industrial output as captured by Index of Industrial Production continues to be volatile, and select segments of the services sector such as hotels, leisure/travel/tourism, sports, entertainment are still away from seeing any visible traction. Ind-Ra believes them to still witness growth in FY22 mainly due to the base effect. Ind-Ra expects industrial and services sector to grow at 11.5 per cent and 11.4 per cent yoy, respectively, in FY22.
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