Ind-Ra revises up India's FY22 GDP estimate to 9.4%

24 Aug '21

3 min read

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India Ratings and Research (Ind-Ra) recently revised India’s gross domestic product (GDP) growth projection for fiscal 2021-22 (FY22) to 9.4 per cent year on year (YoY) as the ebbing of the pandemic’s second wave has led to several high frequency indicators showing a faster rebound than expected, kharif crop sowing is indicating a significant pick-up with the revival of the monsoon and exports volume and growth showed a surprise turnaround in the first quarter (Q1) of the fiscal.

If India vaccinates its entire adult population by December 31, then its GDP growth is expected to come in at 9.6 per cent YoY in FY22, the rating agency had said earlier. But going by the pace of vaccination, it is now almost certain that India will not be able to vaccinate its entire adult population by that deadline, it said.

Yet, FY22 GDP will be 10.9 per cent lower than the trend value.

A glance at the National Accounts Data shows that of the four demand-side growth drivers namely private final consumption expenditure (PFCE), government final consumption expenditure (GFCE), gross fixed capital formation (GFCF) and exports, only GFCE has shown somewhat decent growth, averaging 5.7 per cent during FY19-FY21.

PFCE, GFCF and exports during this period grew 1.3 per cent, 1.5 per cent and 1.5 per cent respectively. Of the demand-side drivers, PFCE, proxy for consumption demand, is the largest component accounting for 58.6 per cent of the GDP in FY21, followed by GFCF accounting for 27.1 per cent, exports 18.1 per cent and GFCE 12.5 per cent.

Ind-Ra expects PFCE growth to come in at 10.4 per cent YoY in FY22 compared with 10.8 per cent projected earlier. In fact, the Indian economy had begun to witness a consumption slowdown even before the COVID-19 pandemic hit it.

On an annualised basis, PFCE growth had declined to 5.5 per cent in FY20 from 8.1 per cent in FY17. The decline was even sharper on a quarterly basis where PFCE growth declined to 2 per cent in 4Q FY20 from 11.2 per cent in 3Q FY17. The lockdown caused by COVID-19 in FY21 only aggravated it as jobs, livelihoods and household budget were severely dented.

PFCE in FY22 is estimated to be just 0.3 per cent higher than FY20.

Even from a medium-term perspective, the consumption demand story does not appear to be encouraging, Ind-Ra said. 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.

Among the other demand-side growth drivers, only exports appear to be a bright spot.

Given that economy is still not out of the woods, fiscal support in the form of government expenditure is likely to continue, Ind-Ra predicts.

ALCHEMPro News Desk (DS)

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