Meaningful economic recovery not in sight until FY23: Ind-Ra
Feb 12, 2021
New Delhi [India], February 12 : Although economic recovery in coming financial year beginning April 1 (FY22) on a year-on-year basis will be V-shaped, the size of GDP will barely surpass the level attained in 2019-20 (FY20) and be 10.6 per cent lower than trend value, according to India Ratings and Research (Ind-Ra).
The impact of Covid-19 pandemic and lockdown on the economy (although subsiding now) will continue to delay normalisation of economic activities in contact-intensive sectors till the mass vaccination and herd immunity becomes a reality, it said.
Ind-Ra estimates the GDP growth will bounce back to 10.4 per cent year-on-year in FY22, primarily driven by the base effect. After recording negative growth during 9M FY21, GDP growth will finally turn positive at 0.3 per cent in 4Q FY21.
In the FY22 Union Budget, the government while setting aside fiscal conservatism decided to provide much-needed support to demand side of economy which had been missing in the Atmanirbhar package announced earlier.
As a result, Ind-Ra expects the government final consumption expenditure to grow 10.1 per cent in FY22.
Although the private final consumption expenditure was witnessing a slowdown even before the imposition of Covid-19 induced lockdown, it is expected to grow by 11.2 per cent in FY22 led by essentials (pharma, healthcare and telecom) followed by non-discretionary consumer goods, infrastructure (chemicals, oil and gas, IT, sugar and agri-commodities), industrial goods and cyclical sectors (power, iron and steel, logistics, cement, construction, automobiles and automobile ancillaries).
Yet, Ind-Ra's said the private final consumption expenditure in FY22 will be 14.2 per cent less than the trend level. It expects investments as measured by gross fixed capital formation to grow at 9.4 per cent in FY22, ably supported by government capex which is budgeted to grow at 26.2 per cent in FY22.
Despite this renewed focus by government on capex, the size of gross fixed capital formation in FY22 will still be 26.3 per cent lower than the trend level, said Ind-Ra.
