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Rating agencies bet on 9% plus GDP growth in FY22 for India as economic activity set to rebound

S&P Global Ratings have kept their growth forecast for India unchanged at 9.5 percent while ICRA has updated its forecast from the earlier 8.5 percent to 9 percent.

September 28, 2021 / 09:01 PM IST
Representational Image. [Image: Shutterstock]

Representational Image. [Image: Shutterstock]

Betting on a strong rebound in economic activity in the latter part of the year as the rising vaccine numbers lead to key sectors reopening and household consumption rising, at least two ratings agencies have so far reposed their trust in the Indian economy growing by more than 9 percent in FY22.

Policymakers will breathe easy as S&P Global Ratings have kept their growth forecast for India unchanged at 9.5 percent. Saying that high-frequency indicators suggest a strong rebound over July-September, the agency believes small businesses will get a chance to repair their balance sheets.

It also pointed out that other fundamentals such as the reserve buffers and current-account shortfalls are better than in 2013, when India was one of the "Fragile Five" economies caught in the crosswinds of Federal Reserve tapering.

However, it has pointed out that inflation remains relatively high, and public debt worries persist.

On the other hand, rating agency ICRA, a Moody's Investors Service affiliate, has revised its FY22 GDP growth estimate for India upwards to 9 percent from 8.5 percent, citing better prospects in the second half of the fiscal year.


"The robust kharif harvest is likely to sustain the consumption demand from the farm sector. Additionally, the expected acceleration in central government spending after the withdrawal of the earlier cash management guidelines will recharge this key driver of aggregate demand," Aditi Nayar, Chief Economist at ICRA said.

The government's spending had contracted by 4.7 percent in April-July 2021 on a Y-o-Y basis and stood at 28.8 percent of the FY2022 Budget Estimates. ICRA expects higher government spending to boost growth in H2 FY2022, in contrast to the situation in Q1 FY2022, when government consumption expenditure had trailed the year-ago levels, the agency said.

 If the average of 7.9 million doses per day recorded during September 1-26, 2021, can be sustained, ICRA estimates that nearly three-fourths of Indian adults could receive their second Covid-19 vaccine shot by the end of 2021.

However, it pointed out that trends from the industrial sector remain lacklustre in September 2021, with semi-conductor non-availability weighing upon auto production and a flattening out of GST e-way bills. Moreover, heavy rains have dampened electricity demand and are likely to distort trends in mining and construction.

Overall, in sharp contrast to India's positive outlook, S&P Global Ratings lowered its growth forecast for Asia-Pacific to 6.7 percent this year from 7.5 percent citing persistent COVID-19 waves and weak growth prospects.

It pointed out that near-term uncertainty due to imminent default fears of real estate firm Evergrande and policy actions by Beijing may have an impact on growth. Tightening regulations across the technology sector has seen China bringing in fresh restrictions on diverse sub-sectors from data security to online gaming.

Official data released on August 31 showed real GDP rose 20.1 percent in the first quarter (April-June) of 2021-22, a record rise on the back of a low base a year earlier. GDP had contracted by 24.4 percent in the April-June quarter a year ago, when a nationwide lockdown was imposed to curb the spread of the coronavirus. It was the steepest quarterly economic contraction in independent India’s history.
In absolute terms, both real GDP and Gross Value Added for April-June 2021-22 came in lower than in the previous three quarters. The finance ministry is of the view that this is the bottom for this year at least, and while in percentage terms the current and the coming quarters will not match Q1 numbers, they will be higher in absolute terms.
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 6 years. He has also extensively covered evolving industry and government issues. He was earlier with Business Standard newspaper.
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