Moody’s Analytics expects private consumption and non-residential investment in India to materially pick up over the next few quarters and strengthen the domestic demand revival in 2021.
Overall, the company’s baseline forecast for the country is for real GDP to grow 12 per cent in yearly terms in 2021 following a 7.1 per cent contraction in 2020, .
The forecast assumes that herd immunity against Covid-19 is unlikely to be reached before the end of 2022. A strengthening second wave of Covid-19 remains the key risk to recovery in 2021, the Moody’s Corporation subsidiary said in the report.
Moody’s Analytics said its March baseline assumptions reflect an upgraded view of India's growth in 2021.
Indiaʼs near-term prospects have turned more favourable following a stronger than expected December quarter, when GDP grew by 0.4 per cent over the year following a 7.5 per cent contraction in the September quarter, it added.
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The company, which provides financial intelligence and analytical tools, observed that domestic and external demand has been on the mend since the easing of restrictions, which has led to improved manufacturing output in recent months
“The strong yearly growth is partially the result of a low base-year comparison.
“This forecast is equivalent to real GDP, in level terms, growing by 4.4 per cent above pre-Covid-19 levels (as of March 2020) by the end of 2021, or equivalently, by 5.7 per cent above the GDP level in December 2020 by the end of 2021,” said Shahana Mukherjee, Economist, Moody’s Analytics.
The report underscored that monetary and fiscal policy settings will remain conducive to growth. “We do not expect any additional rate cuts this year below the current 4 per cent at which the benchmark repurchase rate is being maintained,” it added.
Mukherjee felt that some additional fiscal support may be mobilised during the second half of the year, depending on the softness in domestic spending.
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Direct forms of fiscal support such as income tax cuts, however, are less likely in the current setting.
“We expect the budget for fiscal 2021-2022 to drive the annual fiscal defecit to nearly 7 per cent of GDP. It includes additional expenditure on infrastructure development, and the associated benefits in the form of employment creation should accrue over the coming quarters,” the Economist said.
Moody’s Analytics expects core inflation to see a more controlled rise in 2021, although food-price or fuel driven inflation can become a recurring factor, weighing on household disposable income.