With phased unlocking under way, GDP growth projected at 8.5 pc in FY22: ICRA

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New Delhi: Rating agency ICRA projected the year-on-year (YoY) growth of GDP and gross value added (GVA) at basic prices (at constant 2011-12 prices) at 8.5 per cent and 7.3 per cent respectively in FY2022.

If vaccine coverage is accelerated following the recentralised procurement policy, the GDP expansion may be as high as 9.5 per cent with a widening upside in Q3 and Q4, it said.

Chief Economist Aditi Nayar said the impact of second wave of Covid-19 and ensuing state-wise restrictions were seen across a variety of high frequency indicators in April and May.

“Now that the fresh cases have moderated and restrictions are being eased, we have placed our baseline GDP growth forecast for FY2022 at 8.5 per cent.”

For the full year, ICRA expects the GDP growth to exceed the GVA growth by 120 basis points, based on expectations related to the value of taxes on products and subsidies on products.

The agency continues to expect a prolonged negative impact of the second wave on consumer sentiment and demand with healthcare and fuel expenses eating into disposable income, and less pent-up/replacement demand in FY2022 relative to FY2021.

“Notwithstanding the expectation of a normal monsoon buffering prospects for crop output and less reverse migration in 2021 compared to 2020, we expect the combination of the sharp rise in rural infections, loss of employment as well as remittances to weaken the rural sentiment and demand,” it said.

Even as the second wave of Covid-19 infections has dampened the near-term outlook for economy, vaccine optimism has led global commodity prices to soar.

ICRA continues to expect subdued domestic demand to constrain pricing power, squeezing margins in many sectors.

With the CPI and WPI inflation expected to average 5.2 per cent and 9.2 per cent respectively, it expects the nominal GDP to expand by 15 to 16 per cent in FY2022.

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