Rating agency ICRA on April 28 revised down its forecast for India's GDP to grow by 10 to 10.5 percent in 2021-22 from the earlier projection of 10-11 percent, in the wake of the localised restrictions imposed by various state governments owing to the COVID-19 second wave.
"With sentiments souring, there may be some loss of demand particularly in the contact intensive sectors. Overall we have tempered our expectations of GDP expansion in Q1 of FY2022 to 20-25 percent from our earlier forecast of 27.5 percent," Aditi Nayar, Chief Economist, ICRA said.
The key downside risks to our forecast are a continuation of this wave of infections and an extension of the restrictions imposed so far, relatively severe restrictions being imposed in additional states, and the existing vaccines not being effective enough against the new variants of the virus, Nayar added.
ICRA cautioned that the localised restrictions have started to impede the sequential momentum in certain sectors, such as domestic airlines’ passenger traffic, electricity demand, vehicle registrations and the generation of GST e-way bills.
However, the availability of vaccine imports enabling a faster coverage of the vaccination drive may offer a back-ended upside to the GDP growth in FY2022, after the disruption that may emerge in the near term. the rating agency added.
"We foresee six sectors, namely, aviation; hotels, restaurants and tourism; media and entertainment-exhibitors; microfinance institutions; real estate-retail; and retail, to be at high risk from the second pandemic wave, much lower than in 2020," said K. Ravichandran, Deputy Chief Ratings Officer, ICRA Ltd.
Risk aversion among lenders could pose a challenge to credit growth, which the rating agency projects at 7.3-8.3 percent and 7.0-9.0 percent, respectively, for banks and non-banks for FY2022, ICRA said.
However, the banking system’s solvency profile is better than the pre-COVID levels, affording it a buffer to absorb shocks, it added.