Ind-Ra cuts FY22 growth forecast for India to 9.4% from earlier announced 9.6%

However, private final consumption expenditure (PFCE), gross fixed capital formation and exports, during this period, grew only 1.3%, 1.5% and 1.5%, respectively.

India Ratings and Research on Thursday trimmed its growth forecast for India to 9.4% for FY22 from 9.6% announced earlier, and expected real gross domestic product (GDP) to have expanded at 15.3% in the June quarter, driven by a favourable base.

The forecast was cut, as the agency believed that the vaccination drive wouldn’t cover the entire adult population by December 2021. However, it refrained from effecting a sharp downward revision, as several high frequency indicators are showing a faster rebound than expected, thanks to the ebbing of the second Covid wave. Moreover, kharif sowing has picked up significantly with the revival of south-west monsoon and exports volume and growth showed a surprise turnaround in the first quarter. Still, FY22 GDP will be 10.9% lower than the trend value.

India Ratings said that of the four demand-side growth drivers, only government final consumption expenditure has shown a somewhat decent growth, averaging 5.7% during FY19-FY21.

However, private final consumption expenditure (PFCE), gross fixed capital formation and exports, during this period, grew only 1.3%, 1.5% and 1.5%, respectively.

After a gap of three consecutive quarters, growth in PFCE (the largest component that made up for 58.6% of GDP in FY21) turned positive in the March quarter and was expected to maintain the momentum. However, the second wave hit the country in April and May 2021 with such ferocity that once again there has been a push back to the private consumption.

“Ind-Ra, thus, expects PFCE growth to come in at 10.4% y-o-y in FY22 compared with 10.8% projected earlier,” it said. But this projected double-digit growth in FY22 is primarily due to the base effect. PFCE in FY22 is estimated to be just 0.3% higher than FY20. This is because unlike the first wave, which was largely an urban phenomenon, the second one spread to rural areas as well.

“Even if the agricultural output/income remains intact in view of the progress of monsoon so far, rural households are unlikely to loosen their purse strings in view of the Covid-19 induced rise and/or a likely rise in the health expenditure as also the uncertainty/insecurity associated with the likely future waves of Covid-19,” it said.