India's gross domestic product (GDP) is expected to grow by 11 percent in 2021-22 (FY22), ratings agency Crisil said on March 9. This is in-line with the government’s own projection for the coming fiscal, as spelt out in the Economic Survey 2020-21.
“Crisil expects India’s GDP growth to rebound to 11 percent in FY22, after an estimated 8 percent contraction in FY21, as four drivers – people learning to live with the new normal, flattening of the COVID-19 affliction curve, rollout of vaccinations, and investment-focused government spending – converge,” the agency said.
Addressing the media in a webinar, Crisil's Chief Economist DK Joshi said while the COVID-19 pandemic's stubborn hold remains a potential risk, growth is expected to be more broad-based in the second half of FY22.
“The first half is likely to be characterised by base-effect-driven recovery, amid challenges of a resurgence in COVID-19 cases. The second half may be marked by a more broad-based pick-up in activity amid vaccination roll-out and rising herd immunity domestically and supported by stronger anticipated global growth,” Joshi said.
He said the economy is likely to touch the pre-pandemic level only by the second quarter of FY22. “By the end of fiscal 2022, GDP will only be ~2 percent higher than fiscal 2020 level and ~10 percent below its pre-pandemic trend level,” he said.
Joshi said Crisil expects GDP growth to average 6.3 percent between fiscals FY23 and FY25, which would be lower than the 6.7 percent average growth seen in the decade preceding the pandemic.
“Despite the growth, the Indian economy will suffer a permanent loss of 11 percent of GDP. 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,” he said.
Joshi said in spite of higher global crude prices and petrol and diesel prices at home, headline retail inflation does not run a risk of inching up in the coming fiscal, primarily due to food prices remaining moderate.
He, however, cautioned that many risks remained. “Most major economies have taken on debt to fund their COVID-19 fiscal stimulus packages. This has added to existing high debt levels and will need to be reduced soon, entailing normalisation of fiscal stimulus. Any premature withdrawal of monetary or fiscal stimulus could threaten to slow the pace of economic recovery.”
Joshi said worsening stress in the financial sector and rise in non-performing assets, especially from smaller enterprises is impairing the financial system’s ability to support a sustained, rapid pick-up in growth and added that an unfavourable monsoon is the last thing India needs in the coming year.
The biggest headwind came from the now nascent second wave of the pandemic, he said. “A second wave in several economies and the recent resurgence in a few states in India suggest that the pandemic remains an ongoing risk,” Joshi said.