Moody's projects 13.7 pc growth in FY22, expects 7 pc contraction this fiscal


Global rating agency Moody’s raised its growth expectations for the Indian economy to 13.7% for the coming fiscal against 10.8% it had projected in October, while moderating the expected contraction for FY21 to 7% from -10.6% earlier.

The sharp revisions come from the recent unexpected pick up in activity and growing market confidence reinforced by the Covid-19 vaccine rollout, said Gene Fang, associate managing director, sovereign risk at Moody’s, during a virtual conference on Thursday.

While the FY21 growth revision reflects the pick up in the last three months of 2020, the updated forecast for FY22 “reflects largely a normalisation of activity off of very pronounced base effects so I wouldn’t read too much into that number,” Fang said.

“But certainly, it does incorporate an expectation that the recovery in activity will continue and we will see that reinforced by some degree of roll out in vaccines and a growing confidence in the market that things are coming more back to normal,” Fang added.

Subdued recovery

Moody’s Indian arm, ICRA took a more conservative view, projecting FY22 growth at 10.5% as the current data pointed to a subdued recovery in the coming fiscal with variations in the pace of normalisation across income groups and formal and informal sectors, said Aditi Nayar, principal economist at ICRA.

“When we look at informal sectors, people that are self-employed, the people who are still struggling to get back to employment in the contact-intensive sectors, we think that they are going to see a back-ended pick up in consumption,” Nayar said addressing the virtual conference.

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While higher income groups would see a sharp growth in discretionary consumption on recreation, travel tourism and entertainment after the vaccine rollout gains more traction, lower income groups would see a more delayed recovery in discretionary spending as they attempt to rebuild their savings which they dipped into in FY21.

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Inflation

The economy was likely to see a ‘double whammy’ on inflationary pressures from the petrol and transport components of inflation as crude oil prices continue to rise, according to Nayar.

“Unless we have a situation where either crude oil prices start coming off significantly from the current levels, of which we think there is a very low likelihood, or that the Centre or state governments start to reduce the taxes on fuels in large numbers (there will be large risk factors to WPI and CPI),” Nayar said.

ICRA expects headline consumer inflation to ease to 4.5% in the coming fiscal from the expected 6.1% in FY21 while wholesale inflation is expected to rise sharply to 5.2% in FY22 from under 1% in the current fiscal.

Disinvestment

Moody’s also raised concerns over the achievability of India’s disinvestment target for the coming fiscal.

While such one-off monetisation policies were less durable in terms of supporting fiscal health, the agency was uncertain whether such privatisation projects would be executable for the government, according to Fang.

“Most of the revenue assumptions (in the budget) are relatively conservative with the possible exception of the monetisation expectations that the government’s baked into the budget,” Fang said.

Finance minister Nirmala Sitharaman had announced a disinvestment target of Rs 1.75 lakh crore for FY22, during her budget speech earlier this month.

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