FY22 GDP to grow at 8.5%: ICRA

With decline in number of fresh Covid-19 cases and easing of restrictions, the country’s gross domestic product (GDP) will grow at 8.5% in FY2021-22, according to credit rating agency ICRA Ratings.

It expects the gross value added (GVA) at basic prices (at constant 2011-12 prices) to grow at 7.3% in FY22.

“The impact of the second wave and the ensuing state-wise restrictions was seen across a variety of high frequency indicators in April-may 2021. Now that the fresh cases have moderated, and restrictions are being eased, we have placed our baseline GDP growth forecast for FY22 at 8.5%,” ICRA Chief Economist Aditi Nayar said. ICRA said if vaccine coverage is accelerated following the re-centralised procurement policy, the GDP expansion in FY22 may be as high as 9.5%, with a widening upside in Q3 and Q4 of FY22.

In FY2020-21, the country’s GDP contracted by 7.3%. Last week, the Reserve Bank of India (RBI) had projected real GDP growth at 9.5% in 2021-22. For the full year, it expects the GDP growth to exceed the GVA growth by 120 basis points (bps), based on the expectations related to the value of taxes on products and subsidies.

It has taken into account the likely higher outgo towards food subsidies by the government in FY22, relative to the budgeted level, following the decision to provide free food grains in May-november 2021. The agency has excluded the impact of the release of food subsidy arrears in FY21, based on the clarification provided by the National Statistical Office. The monthly pattern of subsidy release by the government cannot be ascertained at present, Nayar said adding, “Therefore, we caution that the quarterly trend could differ from our baseline assumption, based on when the subsidy pay-out is booked.”