India Ratings cuts FY22 GDP growth forecast to 9.4% from 9.6%

India Ratings and Research on Thursday revised downward its economic growth forecast for India to 9.4% for FY22 from 9.6% estimated earlier as it does not see the entire adult population getting vaccinated by December 31 despite a strong recovery after the second Covid-19 wave,

“Going by the pace of vaccination, it is now almost certain that India will not be able to vaccinate its entire adult population by December 31, 2021,” said Sunil Kumar Sinha, principal economist, India Ratings.

The rating agency’s estimate suggests that 5.2 million daily doses would have to be administered from August 18, 2021 to vaccinate more than 88% of the adult population by year-end as well as to administer single doses to the rest by March 31, 2022.


FY22 GDP will be 10.9% lower than the trend value despite several high frequency indicators showing a faster rebound than expected, kharif sowing indicating a significant pick-up with the revival of south-west monsoon and exports volume and growth showing a surprise turnaround in the first quarter of FY22.,

The Reserve Bank of India has maintained its estimate of 9.5% growth for 2021-22.

Consumption, savings, investment
Sinha said that the Indian economy had begun to witness a consumption slowdown even before the Covid-19 pandemic hit it and unlike the first wave, which was largely an urban phenomenon, the second wave spread to rural areas as well.

“Even if the agricultural output/income remains intact in view of the progress of monsoon so far, rural households are unlikely to loosen their purse strings in view of a likely rise in health expenditure as also the uncertainty/insecurity associated with the likely future waves of Covid-19,” he said.

Urban households, besides the rise in health expenditure, are facing the double whammy of income loss or stagnation coupled with high consumer inflation, according to the report.

The ratings agency said that even from a medium-term perspective, the consumption demand story does not appear to be encouraging.

“With the Covid-19 pandemic still looming large on the Indian economy, Ind-Ra believes households are no longer hopeful of a significant upside to their income in the near to medium term. This, coupled with low consumer confidence and depleted savings, is expected to limit the growth in consumption demand,” it said.

India Ratings said that Private Final Consumption Expenditure (PFCE) growth, turned positive in January-March quarter after a gap of three consecutive quarters and was expected to maintain the momentum but the second wave hit the country in April and May 2021 with such speed and scale that once again there has been a push back.

“India Ratings thus expects PFCE growth to come in at 10.4 % in FY22 compared with 10.8% projected earlier,” it said.

It also estimates investments as measured by Gross Fixed Capital Formation to grow 9.1% on-year in FY22. However, it will be 2.7% lower than FY20.

Bright exports
Among the other demand-side growth drivers, only exports appear to be a bright spot. As the April-June quarter exports volume and growth indicates a revival backed by a favourable global trade outlook, Ind-Ra expects exports growth of goods and services to grow 16% on-year in FY22. India’s outbound shipments rose 49.85% on year to a record $35.43 billion in July.