The country’s gross domestic product (GDP) growth is likely to be 8.8% to 9% in the current financial year, driven by the agriculture and industrial sectors, Care Ratings said in a report.
The country’s economy had contracted 7.3% in fiscal year 2020-21.
The agency said the outlook for the Indian economy in almost all respects fiscal year 22 would appear to look better than fiscal year 21 because of the negative base effect.
“GDP growth for the year (FY22) is expected to be 8.8% to 9% with a GVA (gross value added) growth of 7.8%. The main drivers of the economy would be agriculture and industry, “the rating agency said in its 2021-22 Economic Outlook.
The service sector will not be able to reach its potential even with growth of 8.2 percent, as the second lockdown has affected sectors such as hotels and restaurants, tourism, shopping centers and entertainment in particular, he said.
While both the RBI and the government have done a lot on the supply side, the unrest is on the demand side, which has been a problem even before the pandemic. Care Ratings he pointed.
A critical factor this time will be the spending pattern of rural households, the report said, adding that the monsoon forecast is good and ideally a stable Kharif crop should bode well for rural incomes.
There could be some pent-up demand emerging this time from urban India as well, but it may hold up to last year’s level and not really a breakthrough.
“Higher consumption should stimulate investment. The crux will be an investment that has a multiplier effect on demand and investment,” he said.
The report also said that the fiscal deficit for fiscal year 22 is projected between Rs 17.38 lakh crore and Rs 17.68 lakh crore.
“For a nominal GDP of Rs 222.9 lakh crore, increasing the size of the fiscal deficit would potentially raise the fiscal deficit index to 7.8-7.9 percent of GDP,” the report said.
He also said that the cost of services has risen across all components, which combined with the impact of fuel would keep the CPI (inflation based on the consumer price index) high at around 6 percent by the end of March.
Inflation based on the wholesale price index will be in the double digits mainly due to the low base effect and higher world commodity prices.
“Given the high inflation figures seen so far and our expectation that CPI inflation will remain high, it does not seem likely that there could be a rate cut at least in calendar year 2021,” the agency said.
It also expects banks’ NPAs to be between 10 and 10.5 percent by March 2022.
The current account will turn into a deficit this year with a larger trade deficit and stable invisible flows, he said.
“We expect a deficit of 0.5-1 percent of GDP in FY2021-22,” he said.
The report further said that FPI flows to the country would be lower than last year and would be in the region of USD 18-22 billion.
He estimates that the country’s foreign exchange reserves will be around $ 620-630 billion by the end of March.
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