FY22 real GDP growth to come in at 10.4 pc on low base; potential growth impacted: Ind-Ra

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February 10, 2021 5:27 PM

From a revenue gathering perspective, while a bulk of the budgetary targets are realistic, there is an over-dependence on the divestment programme, he said.

The domestic ratings agency, however, made it clear that the higher growth in FY22 will be due to the low base and from a trend growth perspective, India will still be at a lower level at the end of the next fiscal.The domestic ratings agency, however, made it clear that the higher growth in FY22 will be due to the low base and from a trend growth perspective, India will still be at a lower level at the end of the next fiscal.

India’s real GDP will grow at 10.4 per cent in FY22, after a 7.8 per cent contraction in the pandemic-impacted FY21, India Ratings and Research said on Wednesday.

The domestic ratings agency, however, made it clear that the higher growth in FY22 will be due to the low base and from a trend growth perspective, India will still be at a lower level at the end of the next fiscal.

“This fiscal year (FY21) is giving us the worst growth in independent India, next fiscal will be the best because of the base effect because we have slowed down so much this year,” its Chief Economist Devendra Pant told reporters on a call.

The agency has a “cautiously optimistic” view on the Indian economy at present, he said, welcoming a slew of Budget measures including the transparency and credible assumptions it makes.

However, consumption, which has been the mainstay of growth for many years, has been lagging. After consecutive years of slowing growth and now a contraction, the rational consumer has decided to cut down on expenses, he said.

Economic growth potential has slipped to not more than 5 to 6 per cent as against the 7.5 to 8 per cent levels it was pegged at before the beginning of the growth slowdown in FY17, the agency’s Principal Economist Sunil Kumar Sinha said.

He said the 15th Finance Commission also assumes a similar growth trajectory in the medium term and warned that pump-priming the economy to achieve more than potential will lead to inflationary pressures.

Sinha further said the economy will be merely covering the lost ground of FY21 in the next fiscal, and if looked at from a longer term lens, it will be only a marginal recovery.

The agency expects headline retail inflation to cool down to 4.3 per cent in FY22, which is still above the RBI’s mid-term target of 4 per cent, and hence expects a longish pause for 6-9 months more from the central bank, he said.

Sinha said from a consumption growth perspective, the recently announced Budget indeed has some measures but rued that it ignores the bottom of the pyramid, as there are no specific measures towards that base.

He pointed out that there has been a cut in the spends towards rural employment guarantee as well, which can be seen as being indicative of the government’s confidence in the recovery wherein it feels that economic growth in itself will lead to a betterment of conditions for the target population.

Pant added that the government has conceded to taking a relook at the MNREGA spends if the conditions so arise during the course of the year.

From a revenue gathering perspective, while a bulk of the budgetary targets are realistic, there is an over-dependence on the divestment programme, he said.

“The recovery in the economy is clearly on. But we are some distance away from fully recovering from where we were before the pandemic and the lockdowns,” Pant said.

The agency also lauded the Reserve Bank for doing a “phenomenal” job in supporting the economy through the pandemic.

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