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COVID-19 | India Ratings cuts GDP growth forecast to 9.6 percent for FY22

India Ratings expects agricultural growth to come in at 3.0 percent in 2021-22, while the industrial sector is expected to grow at 10.9% percent on year.

June 25, 2021 / 03:08 PM IST

India Ratings & Research on June 25 cut its forecast for India's gross domestic product (GDP) growth in 2021-22 to 9.6 percent from 10.1 percent earlier due to the outbreak of the second wave of COVID-19.

Adding, the growth in India's GDP may further fall to 9.1 percent if the country's vaccination drive is delayed by around three months and the country's entire adult population is not vaccinated by the end of the year.

India Ratings in its report said that if the pace of vaccination is maintained close to the 21 June level, then India will be able to vaccinate its entire adult population by the end of the year.

The cut in GDP growth estimate is on account of a consumption slowdown due to the outbreak of the second wave of COVID-19, the rating agency said, adding that, unlike the first wave of COVID-19, the second wave of COVID-19 has spread to the rural areas.

India Ratings said that it expects the country's private final consumption expenditure growth to come in at 10.8 percent in 2021-22 after it slowed down due to the outbreak of the second wave of COVID-19.

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How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

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There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

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Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

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The rating agency estimates that India's gross fixed capital formation will grow 8.9 percent on year in 2021-22.

"Investment activities have been down and out over the past several years for a variety of reasons. Ind-Ra (India Ratings) believes there no meaningful investment revival is possible before 2022-23," the rating agency said. 

It expects investment activity in India to remain muted as manufacturing is still saddled with excess capacity, domestic demand is weak, and the balance sheet of Indian infrastructure companies continues to be leveraged. 

India Ratings expects agricultural growth to come in at 3.0 percent in 2021-22, while the industrial sector is expected to grow at 10.9% percent on year. Similarly, the rating agency expects the growth from the services industry, including segments such as aviation, tourism, hotels sports, entertainment and hospitality, to comes in at 10.4 percent mainly due to the low base of last year.

The silver lining for the Indian economy comes in the form of wholesale and retail inflation which is expected to fall from the current levels and come in at 6.6 percent and 5.5 percent, respectively. Wholesale and retail inflation in May 2021 came in at 12.5 percent and 6.3 percent. 
first published: Jun 25, 2021 02:38 pm
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