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India Ratings & Research (Ind-Ra), Indian arm of global rating agency FITCH, on Thursday revised India’s growth forecast to 9.4 per cent for the current fiscal year 2021-22. In June, it estimated Indian economy to grow between 9.1 and 9.6 per cent.
Its growth projection is tad lower than IMF’s, S&P’s and RBI’s growth projection 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.
“Ind-Ra has revised its GDP growth for FY22 to 9.4 per cent year-on-year because with the ebbing of COVID 2.0, several high frequency indicators are showing a faster rebound than expected, kharif sowing is indicating a significant pick-up with the revival of south-west monsoon and exports volume and growth showed a surprise turnaround in 1QFY22,” the agency said. Yet, FY22 GDP will be 10.9 per cent lower than the trend value.
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Earlier, the agency in its last forecast had articulated that economic recovery would depend on the progress of the vaccination drive. If India is able to vaccinate its entire adult (18+) population by December 31 2021, then the GDP growth is expected to come in at 9.6 per cent in FY22, otherwise it may slip to 9.1 per cent, the report said.
“Going by the pace of vaccination, it is now almost certain that India will not be able to vaccinate its entire adult population by December 31, 2021. Also, the agency’s estimate suggests that 5.2 million daily doses would have to be administered now onwards to fully vaccinate more than 88 per cent of the adult population as well as to administer single doses to the rest by March 31, 2022,” it said.
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PFCE growth
The agency mentioned that PFCE (Private Final Consumption Expenditure ) growth after a gap of three consecutive quarters turned positive in January-March quarter of FY 21 and was expected to maintain the momentum, but COVID 2.0 hit the country in April and May this year with such speed and scale that once again there has been a push back to PFCE. “Ind-Ra thus expects PFCE growth to come in at 10.4 per cent in FY22 compared with 10.8 per cent projected earlier,” it said. Further. it mentioned that the projected double-digit PFCE growth in FY22 is primarily due to the base effect.
The agency does not foresee the consumption demand story to be encouraging. The household saving to GDP ratio declined to 19.6 per cent and the personal loan to GDP ratio increased to 12.5 per cent in FY20. This suggests that a part of the consumption demand witnessed during FY12-FY20 was leveraged/debt funded.
“There is nothing wrong with leveraged demand so long as the anticipated income growth is being realised and it is taking care of debt servicing. However, the decline in household saving to GDP ratio over the years suggests that this has not been the case and households have been sustaining their consumption needs by both dipping into their savings and incurring debt,” it said.
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