India’s growth in FY22 will be a story of two halves: Crisil

Our Bureau Mumbai | Updated on March 09, 2021

Says recovery won’t be easy with scars of the pandemic deep for small businesses

Crisil expects India’s gross domestic product (GDP) growth to rebound to 11 per cent in fiscal 2022 after an estimated 8 per cent contraction this fiscal.

The analytics company sees growth next fiscal (FY22) to be a story of two halves, with base-effect lifting the first half and broad-based growth in the second.

Crisil reasoned that the rebound will happen as four drivers – people learning to live with the new normal, flattening of the Covid-19 affliction curve, rollout of vaccinations, and investment-focussed government spending – converge.

However, as in this fiscal, the pace of growth will differ in the first and second halves next fiscal.

While the first half of next fiscal will benefit optically because of low-base effect, the second half would see a more broad-based pick-up in economic activity owing to a commodity price lift, large-scale vaccinations and likely stronger global growth, the company said in a statement.

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Ashu Suyash, Managing Director and CEO, said: “The journey from the pervasive darkness cast by an unprecedented pandemic to the beginnings of a clawback has not been easy.

“Policymakers and regulators have primarily facilitated the revival. India’s medium-term growth now hinges on a kickstart of the investment cycle.”

There are early positive signs, powered by government spending such as through the National Infrastructure Pipeline, demand-driven capex, and the Centre’s Production-Linked Incentive (PLI) scheme, she added.

Scars of the pandemic

But recovery won’t be easy, with scars of the pandemic deep for small businesses and the urban poor; the rural economy has been more resilient versus urban, and services are lagging manufacturing in recovery.

Trade has also normalised faster than rest of the economy, with both exports and imports scaling pre-pandemic levels.

Crisil noted that while exports are recovering well for large industries, agriculture and allied sectors, they remain weak for labour-intensive, small-enterprise driven segments such as gems and jewellery, garments, and leather products because of their discretionary nature.

Blueprint for a post-pandemic economy

Dharmakirti Joshi, Chief Economist, said: “Crisil expects GDP growth to average 6.3 per cent between fiscals 2023 and 2025. That would be lower than the 6.7 per cent average growth seen in the decade preceding the pandemic, but higher than the 5.8 per cent average in the three fiscals prior.”

According to Joshi’s assessment, despite the growth, the Indian economy will suffer a permanent loss of 11 per cent of GDP. And in real terms, the size of the economy next fiscal will be a mere 2 per cent bigger than what it was in fiscal 2020, he added.

“Importantly, the dynamics of domestic demand and trade continue to be unfavourable for small businesses. Policy support, therefore, must continue for them and for the urban poor, who have borne the brunt of the pandemic,”said Joshi.

V-shaped recovery

Crisil said corporate revenue growth has surprised with a V-shaped recovery in the first nine months of this fiscal by cresting three tailwinds: resilience in exports of information technology services and pharmaceuticals, the commodity upcycle, and price hikes that offset volume declines in automobiles.

As per the company’s projection, next fiscal, revenue should grow 15-16 per cent, led by volume recovery across sectors on two consecutive low-base years and higher investment spend by the government, especially in core infrastructure segments of roads, railways, urban infrastructure.

Shorn of the optical base-effect, revenue will be only 8-9 per cent higher than in fiscal 2019, it added.

The company said operating profit margin, which touched a decadal high this fiscal, should sustain despite some cost pressure.

In the context, medium-term prospects of the economy hinge critically on revival of the investment cycle, which has been one of the biggest impediments to structural growth for many years now. The recent pick-up in public investment provides a glimmer of hope, it added.

Amish Mehta, Chief Operating Officer, said: “Next fiscal, many pieces can fall into place leading to 20-25 per cent overall growth in investments to about ₹14.6-lakh crore. The push by Centre and States, especially to roads, railways and urban transport, will drive up overall infrastructure investments 17-20 per cent.”

He observed that corporate capex will see 45-55 per cent growth driven by two distinct trends: one, large companies in core industrial segments, which have gained market share and are operating at higher-than-industry-average utilisation rates, pushing pedal on capex after staying away last fiscal; and two, time-bound PLI (productivity linked incentive)-driven projects.

Among the core industrial segments, cement and metals are expected to see healthy investments, while for other sectors, a meaningful recovery will be at least two years away, Crisil said.

Published on March 09, 2021

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