Indian economy looks to put behind COVID-induced pain with double-digit growth forecasts for FY22

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For the Indian economy, struck down by a severe bout of COVID 19, the New Year celebrations were mute this year. The celebratory mood can perhaps shift to the new financial year with more than a dozen organisations and agencies, both global and Indian, predicting the country to be on the threshold of an economic recovery leaving the annus horribilis of 2020 behind.

Most of the organisations and agencies from the International Monetary Fund to Moody’s have said the Indian economy will clock double-digit growth in the new year.

While global rating agency Moody’s has predicted the fastest growth rate at 12%, the UNCTAD has been the most conservative, predicting 5%.

In its ‘Global Macro Outlook 2021-22 (February 2021 Update)’, Moody’s said that the economy has rebounded fast from one of the world’s longest and most stringent lockdowns.

Two other international rating agencies S&P and Fitch have put out growth estimates for the economy at 10% and 11% respectively next financial year.

Fitch Ratings said in its report in mid-January that the country’s GDP is expected to rise by 11% in 2021-22. “We expect the gross domestic product (GDP) to expand by 11% in FY22 after falling by 9.4% in FY21,” the report said.

The agency described the pandemic-triggered recession in India as the “most severe”.

As far back in December 15, another rating major S&P projected that though the economy is expected to contract by 7.7% in 2020-21, it is estimated to rebound by 10% in the next financial year.

Though all the global major rating agencies pointed out to fiscal deficit and the debt burden as areas of concern, all three were unanimous in the recovery prospects of the economy.

In December 2020, foreign research and brokerage house Nomura Securities predicted a 9.9% growth in India for the calendar year 2021. In the Asia Outlook 2021 report, Nomura said that India would put China and Singapore behind to emerge as the fastest growing economy in Asia.

China and Singapore would grow at 9% and 7.5% during the calendar year, Nomura’s experts estimated. It added that India might be in the cusp of a cyclical recovery.

The Economic Survey by the Centre that was tabled in the Parliament on January 29 put the prospect of economic growth at 11%. Despite the optimism to stage a V-shaped recovery, the survey also warned that it might take the economy a couple of years to return to the pre-pandemic GDP levels.

In the first week of February, the Reserve Bank of India pegged the growth at 10.5%.

In end-January, a good one month before the Central Statistical Organisation came out with the FY 21 Q3 growth figure of 0.4%, International Monetary Fund predicted that the Indian economy would grow by 11.5% in 2021-22 and 6.8% the year after.

In the World Economic Outlook report, the IMF said India would grow faster than China which is estimated to record 8.1% and 5.6% in 2021-22 and 2022-23 respectively.

The country’s biggest lender, State Bank of India (SBI), has put the growth prospects of GDP at 11% in 2021-22. On February 10, it also said that it cannot fall below that rate.

However, SBI also cautioned that its projections were based on the assumption that COVID-19 infections won’t rise.

Incidentally, while SBI had forecast that the economy would grow by 0.3% in Q3, the CSO’s figures put it at 0.4%. The bank has also said that it expects the growth in the January-March quarter to be around 2.5%.

The World Bank, in contrast, has been conservative in its estimates. In the first week of January, it estimated the growth to touch 5.4% in FY22. In the Global Economic Prospects report, the World Bank that the output is set to contract by 9.6% in the current financial year.

A major area of concern for the World Bank was India’s informal sector that accounts for almost 80% of the employment, which suffered severe income loss.

In a report in the second week of December, the Asian Development Bank that estimated 8% contraction for FY21 said that the Indian economy would expand by 8% in FY22, a year when South Asia is expected to grow by 7.2%.

That India would witness the fastest recovery in Asia was also estimated by UBS Global Research. “The CVID situation in India has stabilised for now. We expect India’s real GDP growth to rebound to +11.5% in FY22…. While economic growth in FY22 could be at a multi-decade high, this largely reflects the rebound from deeper contraction in FY21 GDP (-7.5% y-o-y),” the agency said in a report in the second week of January.

In its report almost two week after the CSO data on Q3 growth, the Organisation for Economic Cooperation and Development (OECD) projected the growth rate at 12.6%. Its report on economic outlook however pegged the rate to come down to 5.4% in 2022-23.

In the last week of February, a few days before the CSO announced its Q3 data, HSBC said that it expected the economy to grow at 11.2% in FY22. Its earlier projected growth rate was 9%.

Earlier this month, Crisil Ratings said it expected the growth rate to touch 11% in FY22 up from a contraction of 8% in FY21.

While the low base will lend glitter to the growth rate in the first half of next fiscal year, the second half would see a more broad-based pick-up in economic activity due to “commodity price lift, large-scale vaccinations and likely stronger global growth,” the agency said.

In a report on March 18, the UN Conference on Trade and Development forecast that the economy would witness a “stronger recovery” in 2021 and grow by 5%, climbing out of a contraction of 6.9% in 2020. The UN report noted the Union budget’s effort to strive for stimulus to boost demand and raise public investment.