Icra increases India’s GDP growth forecast to 9%

NEW DELHI: The Indian economy will grow 9% in fiscal year 2021-22 (FY22), thanks to better prospects in the second half, ratings agency Icra Ltd said on Monday, in an upgrade of its previous estimate of 8.5%.

“The widening coverage of Covid-19 vaccines is likely to boost confidence, which will in turn re-energize demand for contact-intensive services, helping to revive the portions of the economy affected most by the pandemic. Moreover, 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 Ltd said.

However, Nayar cautioned that a potential third wave and whether the existing vaccines are able to protect against any new variants that might emerge remain key risks.

To be sure, Icra is still at the lower rung of gross domestic product (GDP) forecasts for FY22. While the Reserve Bank of India (RBI) and International Monetary Fund expect India’s GDP to grow at 9.5%, the Asian Development Bank last week projected a 10% growth for FY22.

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

“This should help boost demand for contact-intensive services in Q4 FY22, although some services such as business travel may revert to their preCovid levels with a longer lag,” the rating agency said.

Icra said late sowing has helped to bring the kharif acreage nearly at par with last year’s record area.

“In line with this, the first advance estimates of crop production for FY22 signalled a robust rise in kharif output, barring coarse cereals and oilseeds, quelling the concerns raised by the uneven monsoon and episodes of flooding. Based on this, we have enhanced our forecast for the GVA growth in agriculture, forestry, and fishing to 3% each in Q2 FY22 and Q3 FY22, from our earlier projection of a tepid 2% rise,” Nayar said.

With continued healthy procurement, Icra expects farm sentiments to remain favourable, supporting economic activity.

“The late surge in rainfall will replenish the groundwater levels and may mitigate the impact of the lower reservoir storage. However, availability of fertilizers has become a concern for the upcoming rabi season, as systemic inventory levels are significantly below the historical levels,” Nayar said.