Fitch upgrades India’s GDP growth to 12.8% for FY22

Source: Business Standard, Mar 25, 2021

New Delhi: Fitch Ratings has revised India’s GDP growth estimate to 12.8 per cent for the fiscal year beginning April 1 from its previous estimate of 11 per cent, saying its recovery from the depths of the lockdown-induced recession has been swifter than expected.

In its latest Global Economic Outlook (GEO), Fitch said revision is on the back of “a stronger carryover effect, a looser fiscal stance and better virus containment.”

“India’s second half of 2020 rebound also took GDP back above its pre-pandemic level and we have revised up our 2021-2022 forecast to 12.8 per cent from 11.0 per cent,” it said.

“Nevertheless, we expect the level of Indian GDP to remain well below our pre-pandemic forecast trajectory.”

GDP surpassed its pre-pandemic level in December quarter, growing 0.4 per cent year-on-year, after contracting 7.3 per cent in the previous quarter.

“India’s recovery from the depths of the lockdown-induced recession in 2Q20 (calendar year) has been swifter than we expected,” it said. “The rapid pace of expansion at the end of 2020 was powered by falling virus cases and the gradual rollback of restrictions across States and Union territories.”

High-frequency indicators point to a strong start to 2021. The manufacturing PMI remained elevated in February, while the pick-up in mobility and a rise in the services PMI point to further gains in the services sector.

However, the recent flare up in new virus cases in some states has prompted us to expect milder growth in 2Q21.

“Moreover, the global auto chip shortage could temporarily diminish Indian industrial production gains in 1H21(first half of 2021),” it said.

The Union Budget for the fiscal year ending March 2022 (FY22) unveiled a fiscal stance more accommodative than expected.

Spending is set to be increased substantially, notably infrastructure, healthcare, and military outlays. Looser fiscal policy should support the short-term cyclical recovery, which along with stronger underlying growth momentum prompted FY22 GDP growth forecast revision, Fitch said.

“The increase in inoculation to the most at-risk people should allow restrictions to be eased significantly towards end-2021 and in 2022,” it said. “This should further support services sector activity and consumption.”

The rating agency however said an impaired financial sector is likely to keep the provision of credit tight, limiting investment spending.

“We expect GDP growth to ease to 5.8 per cent in FY23, a downward revision of -0.5 percentage points since December,” it said. “The forecast level of GDP remains substantially below our pre-pandemic trajectory.”

It no longer expected the Reserve Bank of India (RBI) to cut its policy rate, owing to a brighter short-term growth outlook and a more limited decline in inflation. The RBI will nonetheless keep its policy loose over the forecast horizon to shore up the recovery. The central bank will likely continue to use forward guidance on policy rates and carry out open-market operations to keep a lid on borrowing costs, it added.

Pandemic pushes back India’s $5-trillion GDP goal by 3 years to FY32: Report

Source: The Economic Times, Mar 22, 2021

The pandemic-induced shocks to the economy which have already shaved off 15.7 per cent of the GDP from the previous year, will delay the ambitious target of becoming the third largest economy by three years to 2031-32 now, says a report. Currently, the country is the fifth largest economy in the world behind Germany. The government has set a target of becoming a USD5-trillion economy by 2030.

“We now expect the domestic economy to emerge as the world’s third largest economy in FY32, from FY29 earlier, due to the pandemic shocks. It should touch Japan’s nominal GDP in 2031 (in USD terms) if it grows at 9 per cent and in 2030 if it grows at 10 per cent,” a Bank of America (BofA) Securities report said on Monday.

The report however did not ascribe a size to either the domestic economy, which stood at USD 2.65 trillion in 2019-20, or to that of Japan, which in 2020 stood at USD 4.87 trillion.

This assumes a realistic 6 per cent real growth, 5 per cent inflation and 2 per cent rupee depreciation, the report added.

In 2017, BofA had predicted that the country would emerge as the third largest economy in 2027-28 based on its assumption of the demographic dividend, growing financial maturity, and the emergence of mass markets.

In their Monday’s report, the house economist at the Wall Street brokerage said they find all these three phenomena strengthening now.
There are two other catalysts that support structural changes. For one, the RBI has effectively attained a silent revolution in re-achieving adequacy of forex reserves after almost eight years now.

This should help stabilize the rupee by derisking the economy from global shocks.

Further, sustained policy easing is finally bringing down real lending rates that have been a drag on growth since 2016.

The only main downside risk to sustained growth is the oil prices, especially if it trends at over USD 100 a barrel.

If the GDP grows at 10 per cent, as BofA assumed earlier, this will be achieved in 2029-30 and if it grows at 9 per cent, overtaking Japanese economy will be pushed back by three years to 2031-32.

“Our projection of 6 per cent real growth is actually below the 6.5 per cent average since 2014 and our estimated 7 per cent potential,” it said.

Also, for the growth to pick up and sustain, the credit to GDP ratio, a proxy for financial maturity, should climb to 102 in 2031-32 from 44 per cent in 2001-17 and 25 per cent during 1980 and the 1990s.

Infra spends, PLI projects to drive growth next fiscal: Report

Source: The Economic Times, Mar 09, 2021

Projecting next year’s growth to be a story of two halves, with the low base-effect lifting the growth engine in the first half and a broad-based recovery in the second, a report on Tuesday said higher infrastructure investments and PLI projects will drive investments and thus GDP.

Like others, Crisil also expects growth to rebound to 11 per cent in the financial year 2021-22, after “an estimated 8 per cent contraction” this fiscal.

The agency sees four positive drivers converging next fiscal — people learning to live with the new normal after the pandemic, flattening of the coronavirus infection curve, more vaccinations, and investment-focused government spending.

“Our medium-term growth now hinges on a kick-start of the investment cycle.

Crisil Managing Director and Chief Executive Officer Ashu Suyash said, “There are early positive signs, powered by government spending through the national infrastructure pipeline, demand-driven capex (capital expenditure), and the production-linked incentive (PLI) scheme.”

But, the pace of growth will be different in the first and second halves as was in the outgoing year, with the first half benefitting optically from the low-base effect, second half seeing a more broad-based pick-up in economic activity, owing to rising commodity prices, large-scale vaccination and a likely stronger global growth, she said.
She was also quick to warn that recovery will not be easy, with small businesses and the urban poor still suffering from the impact of the pandemic, and urban markets and services still lagging manufacturing in recovery, even as the rural economy remains more resilient.

Trade has also normalised faster than the rest of the economy with both exports and imports scaling back to pre-pandemic levels.

While exports recovery has been good for large industries and agriculture and allied sectors, it remains weak for gems and jewellery, garments, and leather products that are labour-intensive and small in scale.

Beyond 2021-22, agency’s Chief Economist Dharmakirti Joshi sees growth averaging at 6.3 per cent between fiscals 2023 and 2025. It is lower than 6.7 per cent average in the decade preceding the pandemic, but higher than 5.8 per cent average in the three fiscals before.

Yet, the economy will suffer a permanent loss of 11 per cent of GDP, which in real terms means the size of the economy will grow by a mere 2 per cent in 2021-22 over 2019-20, he said.

Expecting the dynamics of domestic demand and trade to continue to be unfavourable for small businesses, he called for continued policy support for them and for the urban poor, who have borne the brunt of the pandemic.

Meanwhile, corporate revenue growth has surprised with a V-shaped recovery in the first nine months of this fiscal by cresting three tailwinds — resilience in software and pharam exports, the commodity upcycle, and price hikes offsetting volume declines in automobiles.

Accordingly, the agency pencils in a 15-16 per cent revenue growth led by volume recovery across sectors and higher public investments, especially in roads, railways, and urban infrastructure.

Shorn of the optical base effect, revenue will be only 8-9 per cent higher in 2021-22 than in 2018-19. Operating profit margin, which touched a decadal high this fiscal, should sustain despite some cost pressure, he said.

Given this, the medium-term growth prospects hinge critically on revival of the investment cycle, something that has been missing for so many years now.

Next fiscal, many pieces can fall into place leading to 20-25 per cent overall growth in investments to Rs 14.6 lakh crore. The push by the Centre and the states on roads, railways and urban transport, will drive up overall infrastructure investments 17-20 per cent, said its Chief Operating Officer Amish Mehta.

Expecting a 45-55 per cent spike in corporate capex next fiscal, he says this will be driven by large companies in core industrial segments that have gained market share and are operating at higher-than-industry-average utilisation rates, pushing pedal on capex after staying away last fiscal; and secondly time-bound PLI-driven projects.

Among core industrial sectors, cement and metals are expected to see healthy investments; while for others, a meaningful recovery will be at least two years away.

According to Crisil analysis, the potential incremental revenue generation from the PLI scheme is Rs 35-40 lakh crore over the next five years across 14 covered sectors.

Oxford Economics ups India growth forecast to 10.2% for 2021

Source: The Economic Times, Feb 17, 2021

Global forecasting firm Oxford Economics on Wednesday revised India‘s economic growth projection for 2021 to 10.2 per cent from the earlier 8.8 per cent, citing receding COVID-19 risks and the shift in the monetary policy outlook. It further said the Budget 2021-22 will create positive externalities for the private sector, and forecast slower fiscal consolidation in FY22 than the government projections.

“Alongside the planned government spending boost in Q1 and receding Covid-19 risks, the shift in the monetary policy outlook supports our 2021 growth upgrade to 10.2 per cent from 8.8 per cent earlier,” Oxford Economics said.

The forecasting firm also noted that India’s latest Union Budget has raised hopes that fiscal policy will finally pick up the growth baton and ease pressure on the RBI to continue to lead the pandemic policy response. “We think the budget proposals will create positive externalities for the private sector, and forecast slower fiscal consolidation in FY2022 than the government projects.

“A proposed increase in capital expenditure should also lower the contractionary impact of the consolidation on GDP,” it said. Oxford Economics noted that if inflation risks materialise, the RBI may have to renege on its growth commitment, which is a downside risk to its growth forecast.

It said the Budget has been largely perceived as supporting growth, despite a projected narrowing of the fiscal deficit from 9.5 per cent of GDP in fiscal 2020-21 (ending March 2021) to 6.8 per cent in 2021-22. “In all, we do see merit in the view that the budget is growth-oriented and expect the positive spillover impact on the private sector to help nurture the ongoing recovery,” it said.

The Economic Survey has projected an 11 per cent growth for 2021-22, aided by a V-shaped recovery and a 7.7 per cent contraction for the current year. It also projects a lower 6.8 per cent growth in 2022-23. The Reserve Bank of India has projected a GDP growth rate of 10.5 per cent for the financial year beginning April 1, on the back of recovery in economic activities.

Economic activity on verge of normality, GDP to grow 13.5% in FY22: Report

Source: The Economic Times, Feb 16, 2021

MUMBAI: Economic activity is on the “verge of normality” after getting severely hit by COVID-19 and Indian GDP will grow at 13.5 per cent in FY22, a Japanese brokerage said on Monday.

The Nomura India Business Resumption Index (NIBRI) picked up to 98.1 (provisionally) for the week ending February 14, from 95.9 in the preceding week, Nomura said.

The economic impact of the pandemic is set to lead the country’s GDP to contract by 7.7 per cent in FY21, and the RBI expects the GDP to contract by 7.7 per cent in FY21, and the RBI expects the GDP to jump by 10.5 per cent in FY22.

The brokerage said it expects the real GDP to contract by 6.7 per cent in FY21, followed by a growth of 13.5 per cent in FY22.

For the week to February 14, mobility indicators continue to pick up, it said.

While power demand fell by 0.1 per cent week-on-week, this may be likely due to a payback from the stellar 9.6 per cent rise during the preceding week, it said, adding that labour participation rate inched down to 40.5 per cent from 40.9 per cent in the previous week. The brokerage said its proprietary index has been on an uptrend since hitting its trough during the strict lockdown in April last year.

“This supports our view that sequential momentum remains positive and that year-on-year GDP growth likely moved into positive territory, at 1.5 per cent in Q4 2020 (from -7.5 per cent in Q3) and 2.1 per cent in Q1 2021,” it said.

The continued recovery in the index is strongly predicated on containment of the pandemic, the brokerage said, adding it is upbeat on growth prospects due to the confluence of fiscal activism, the lagged effects of easy financial conditions, base effects and faster global growth.

India’s GDP to bounce back to 10.4% growth in FY22, says India Ratings

Source: Business Standard, Feb 10, 2021

New Delhi: India Ratings and Research (Ind-Ra) estimates India’s gross domestic product (GDP) to bounce back to 10.4 per cent growth in FY22 driven by base effect, signalling that a meaningful recovery will not happen before FY23.

The rating agency expects GDP growth to turn positive at 0.3 per cent in the January-March quarter of FY21 after shrinking in first nine months of the year.

The YoY recovery in FY22 will be V-shaped, but the size of GDP will barely surpass the level attained in FY20 and will be 10.6 per cent lower than the trend value, the agency said.

“FY22 will be covering the lost ground of FY21,” said Sunil Kumar Sinha, principal economist at Ind-Ra.

“FY20 was a year of slowdown and FY21 was a year of lockdown for India. The worst is behind us with respect to Covid-19. However, till mass vaccination and herd immunity becomes reality, lingering impact on the economy would continue,” Sinha said.

The impact of the lockdown on the economy, although subsiding, will continue to delay the normalisation of economic activities in the contact-intensive sectors, the agency said in its note.

Ind-Ra expects the government’s final consumption expenditure to grow 10.1 per cent YoY in FY22 as the Union Budget has set aside fiscal conservatism to provide the much-needed support to the demand side of the economy. The private final consumption expenditure is expected to grow 11.2 per cent in FY22.

Moody’s projects nominal growth of 17% for next fiscal

Source: The Economic Times, Feb 04, 2021

NEW DELHI: Global ratings agency Moody’s projected India’s nominal growth at 17% for the coming fiscal, a mark up from the 14.3% earlier, based on the “pro-growth” budget, but highlighted the weak prospects of fiscal consolidation.

“The budget’s focus on higher capital expenditure, financial sector reforms and asset sales will help to stimulate growth and supply broad-based credit support,” it said in a report on Wednesday.

The larger-than-expected deficit projections reflected both credible budgetary assumptions and greater transparency, but the government’s weak fiscal position is likely to remain a key credit challenge, Moody’s said. Read the rest of this entry »

Economic Survey pegs 2021-22 GDP growth at 11%

Source:, Jan 29, 2021

NEW DELHI: Finance minister Nirmala Sitharaman on Friday presented the Economic Survey that details the state of the economy ahead of the government’s Budget for fiscal year beginning April 1, 2021.

The Economic Survey 2020-21, authored by a team led by chief economic adviser (CEA) Krishnamurthy Venkata Subramanian, details the state of different sectors of the economy as well as reforms that should be undertaken to accelerate growth.

The economy, which was battered by the coronavirus lockdown, is expected to see a strong recovery in the 2021-22 fiscal year.

The gross domestic product (GDP) contracted by a record 23.9 per cent in April-June and by 7.5 per cent in the second quarter.

For the full fiscal, the survey projected a contraction of 7.7 per cent and V-shaped recovery in the next fiscal.

GDP growth is seen expanding by 11 per cent in the 2021-22 fiscal (April 2021 to March 2022).

Meanwhile, agriculture sector remained the silver lining amid Covid crisis, the survey noted.

India’s GDP to contract 8% this fiscal: FICCI Economic Outlook Survey

Source: The Economic Times, Jan 26, 2021

New Delhi: India’s gross domestic product (GDP) is expected to contract by 8 per cent in 2020-21, according to the latest round of FICCI’s Economic Outlook Survey. The annual median growth forecast by the industry body is based on responses from leading economists representing industry, banking and financial services sector. The survey was conducted in January.

The median growth forecast for agriculture and allied activities has been pegged at 3.5 per cent for 2020-21.

“Agriculture sector has exhibited significant resilience in the face of the pandemic. Higher rabi acreage, good monsoons, higher reservoir levels and strong growth in tractor sales indicate continued buoyancy in the sector,” Ficci stated on the survey findings.

However, industry and services sector, which were most severely hit due to the pandemic induced economic fallout, are expected to contract by 10 per cent and 9.2 per cent respectively during 2020-21.

The industrial recovery is gaining traction, but the growth is still not broad based. The consumption activity did spur during the festive season as a result of pent-up demand built during the lockdown but sustaining it is important going ahead, the survey said.

Besides, it observed that some of the contact intensive service sectors like tourism, hospitality, entertainment, education, and health sector are yet to see normalcy.
“The quarterly median forecasts indicate GDP growth to contract by 1.3 per cent in the third quarter of 2020-21. The growth is expected to be in the positive terrain by the fourth quarter with a projection of 0.5 per cent growth,” estimates the survey.

Further, on the estimates of other macro parameters, the survey participants put the median growth forecast for IIP at (-) 10.7 per cent for the year 2020-21, with a minimum and maximum range of (-) 12.5 per cent and (-) 9.5 per cent respectively.

WPI-based inflation rate is projected to be flat in 2020-21. On the other hand, CPI-based inflation has a median forecast of 6.5 per cent for 2020-21, with a minimum and maximum range of 5.8 per cent and 6.6 per cent respectively, the survey revealed.

On the fiscal front, a slippage is imminent this year and the median estimate for fiscal deficit to GDP ratio was put at 7.4 per cent for 2020-21 by the participants with a minimum and maximum range of 7 per cent and 8.5 per cent respectively. Fiscal deficit for 2020-21 was budgeted at 3.5 per cent.

However, participants of the survey expect the economy to perform much better and have projected a median GDP growth rate of 9.6 per cent for the financial year 2021-22.

The strong rebound in growth will be supported by a favourable base as economic activity normalizes post the sharp pandemic led contraction. The minimum and maximum growth was forecast at 7.5 per cent and 12.5 per cent respectively.

“However, a surge in the number of COVID-19 cases and the appearance of new strains can be a deterrent to the improving growth conditions. It is therefore important that preventive measures continue to be in place,” Ficci said.

A good vaccine coverage without many cases of adverse reporting will be a pre-requisite for the normalization process, it added.

However, economists participating in the survey were deeply concerned about the global liquidity situation which, at present, is significantly in surplus and is finding ways to enter asset markets.

The participants called upon global central banks to remain watchful of the situation and not allow overheating of markets.

Moreover, despite optimism on the growth front, economists cited persistent risks to unemployment and therefore felt the need for continuous monitoring on that front.

Sharing their expectations from the Union Budget, a majority of the participating economists suggested increased public expenditure on building infrastructure.

They suggested that the government restructure its expenditure in favour of capital spending (in roads, railways, urban and rural infrastructure, housing) along with providing a clear roadmap and financing plans of the National Infrastructure Pipeline announced in the latter part of 2019.

To enhance revenue collections, economists suggested that government utilizes the current buoyancy in market sentiments to their favour by pushing for disinvestments.

They also underlined the need for continuous focus towards ease of doing business while simultaneously reducing the cost of doing business in India.

They also suggested a relief package for the services industry particularly those which were most impacted/continue to be deeply impacted by the pandemic including travel & tourism, hospitality, transport, education and healthcare sectors.

Economists participating in the survey have called for increased budget allocation for critical social sectors such as health and education given the current situation.

They said the spending on creation of agriculture infrastructure must be expedited which would result in enhanced capacity of cold storage and warehousing facilities in the country.

“Employment creation and consumption revival remain the key areas for ensuring a sustainable turnaround in economic prospects. Therefore, they called upon the government to announce temporary fiscal stimulus to support consumption in the form of income tax breaks or direct income transfers,” the economists in the survey said.

To ease the employment situation in both rural as well as urban areas, they called for greater budget allocations to MGNREGA along with introduction of an urban employment guarantee scheme similar to its rural equivalent.

Economic activity continues on normalisation, FY21 GDP to contract 6.7%

Source: Business Standard, Jan 13, 2021

Mumbai: Economic activity continued with its pace of normalisation and the festivities helped narrow the deficits as compared to the year-ago period in December, a Japanese brokerage said on Wednesday.

Based on data shown by its proprietary models, Nomura also revised up wits FY21 GDP forecast to a contraction of 6.7 per cent, as against the official estimate of a 7.7 per cent contraction in the pandemic-impacted fiscal year.

The Nomura India Monthly Activity Indicatorrose to-2.3 per cent in December provisionally when compared to the year-ago period’s performance, and was much better than the -7.7 per cent year-on-year witnessed in November and -13.3 per cent in September, it said.

The brokerage said this suggests a strong recovery in Q4. The pandemic situation did not substantially deteriorate in the festive season in December quarter, clearing the decks for a faster pace of economic normalisation, it said.

“We expect GDP growth of-6.7 per cent y-o-y in FY21, before rising to 13.5 per cent in FY22, above consensus (10 per cent). Along with the moderation in inflation in the short term due to lower food prices, we believe the economy is entering a Goldilocks period,” it said.

It can be noted that earlier in the day, analysts at its American peer Bofa Securities also pegged the GDP to close FY21 with a contraction of 6.7 per cent.

The Japanese brokerage said an index which it uses as a proxy for the extent of normalisation across the economy suggests economic activity continued to improve during December.

At the end of the festive season, the overall normalisation index for consumption improved to 88.3 per cent in December as against 87 per cent in November and 85 per cent in October, it said.

For passenger cars, two-wheelers and tractors, the normalisation index readings are higher than their respective pre-pandemic levels while on the investment front, the index is trending at 93 per cent, which is 3 percentage points below pre-pandemic levels, it said. Similarly, indicators on external sector and aggregate supply also showed improvements, it said.