GDP growth to bounce back in FY22 but full recovery not in sight until FY23: Ind-Ra

India's gross domestic product (GDP) growth will bounce back to 10.4 per cent year-on-year (YoY) in FY22 on base effect, India Ratings and Research (Ind-Ra) has estimated. The rating agency said after recording contraction in 9MFY21, GDP growth will finally turn positive at 0.3 per cent YoY in Q4.

Although the recovery in FY22 will be V-shaped, the GDP size will barely surpass the level attained in FY20, Ind-Ra said, adding that it'll be 10.6 per cent lower than the trend value. It said the full recovery will only be visible in FY23.

Despite the lifting of most curbs and declining cases, the impact of COVID-19 pandemic and lockdown will continue to delay complete normalisation of economic activities till mass vaccination/herd immunity becomes a reality, Ind-Ra stated.

Also read: Govt expects GDP to contract 7.7% in FY21

It said the Budget provided the much-needed support to the demand side of the economy, which had been missing in the Centre's AtmaNirbhar package. As a result, Ind-Ra expects the government's final consumption expenditure to grow 10.1 per cent YoY in FY22.

With this, private consumption expenditure may grow by 11.2% in FY22 (FY21: negative 13.4%), led by essentials (pharma, healthcare and telecom). Ind-Ra projects normal and spatially well-distributed rainfall in 2020 will lead to 3 per cent YoY growth in agricultural gross value in FY22; it's averaging 3.6 per cent during FY14-FY21.

Talking about the sectors still facing problems, the rating agency said select segments of the services sector such as hotels, travel & tourism, sports, and entertainment are still a distance away from recovery.

Appreciating the RBI's effort to ensure liquidity, the agency expects the retail and wholesale inflation to come in at 4.3 per cent and 2.8 per cent, respectively, in FY22. The government's PSB recapitalisation plan worth Rs 20,000 crore announced in Budget will also shore up their capital base, said Ind-Ra.

On the fiscal front, the rating agency said the fiscal deficit of  6.8 per cent of GDP in FY22 is achievable. However, like FY21, it depends on the Centre achieving the disinvestment target of Rs 1.75 lakh crore in FY22.

Also read: India's GDP contracts 7.5%, sequential growth at new high of 23.2%