Experts pare FY22 growth estimates | Economic Times

The extension of Covid-related curbs by many states into June and the greater spread of the pandemic into rural India have further dented the prospects of recovery, triggering a raft of reductions in growth estimates for FY22.Most economists and experts now expect India's gross domestic product (GDP) to grow in single digits against the 11-14% range forecast earlier.SBI Research said it expects a “disproportionately larger impact on economy this time and given that rural is not as resilient as urban, the pickup in pent-up demand is unlikely to make a large difference in FY22 GDP estimates,” paring its forecast to 7.9% from 10.4% earlier. The 7.3% contraction in FY21, better than the 8% fall that had been estimated, will also contribute to a statistical decline in the estimated rebound in FY22. Major states such as Maharashtra, Delhi, Haryana and UP have extended curbs with certain relaxations. “Based on the extension of restrictions in various states, and impact on demand, we have lowered our forecast for growth in H1 FY22,” said Aditi Nayar, chief economist at ICRA.Behavioural ChangesThe domestic rating agency revised its growth forecast to 8-9.5% for the current fiscal year from 10-10.5% earlier."The reimposition of lockdown measures along with behavioural changes for fear of contagion are curbing economic activity and mobility, which will delay India's economic recovery," Moody’s said in a report on Tuesday. It had earlier pared the growth forecast for FY22 to 9.3% from 13.7%.In the first Covid wave, the rural economy had not been impacted much as the case spread was low."With a more muted rural support (compared to last year), ongoing supply side disruptions (especially labour supply) and an extension of the lockdowns in major states, we expect GDP growth at 10% for FY22, revised down from our earlier estimate of 11.5%," HDFC Bank said in a report.While all other assumptions remained the same, CARE Ratings moderated its projected FY22 growth to 8.8-9% from 9.2% earlier on account of the higher base in FY21, said chief economist Madan Sabnavis.Nomura, Barclays and QuantEco Research maintained their FY22 growth estimates at 10.8%, 9.2% and 10% respectively.Monetary, Fiscal LeversThe sharp reduction in interest rates last year had provided support, but that lever is no longer available, given worries over prices."We do not expect any further monetary policy easing by the RBI immediately due to inflationary concerns," said Yes Bank, which lowered its FY22 growth estimate to 8.5% from 10.5% earlier.The government had stepped in last year with relief measures but high fiscal deficits and the possibility of a ratings downgrade leaves little room to do more in addition to the stimulus provided in the February budget."We do not expect the government to increase spending significantly compared with the budget plans as an attempt to shore up the economy," Moody’s said.The government said it is assessing the impact of the pandemic’s second wave."We are getting inputs, we need to take a call, we need to understand where the impact is, how much it is and so on," finance minister Nirmala Sitharaman had said last week when asked about a possible stimulus.Industry has sought more support from the government."We feel that there is an urgent need for boosting demand through direct income support measures. Focus on urban poor, security cover for micro, small & medium Enterprises (MSMEs) and other high contact-based services will be critical," said Uday Shankar, president of the Federation of Indian Chambers of Commerce & Industry (Ficci).Urgent VaccinationExperts also highlighted the importance of ramping up vaccinations to boost activity and prevent a third wave as states relax restrictions.While India had vaccinated 216 million people as of Monday, just about 3% of the population has received the second jab."The exuberance is likely to come in strongly in 2HFY22, by when we believe a critical mass of the Indian population will be vaccinated," said Pranjul Bhandari, chief economist, HSBC Securities and Capital Market (India). HSBC expects 8% growth in FY22.