ICRA upgrades growth hopes to 9% for 2021-22

A potential third wave, and whether the existing vaccines are able to protect against any new variants that might emerge, remain key risks, ICRA chief economist Aditi Nayar said

Rating agency ICRA has bumped up its GDP growth forecast for 2021-22 to 9% from 8.5%, citing better prospects for the second half of the year due to a ramp-up in COVID-19 vaccination and healthy kharif crop estimates.

A potential third wave, and whether the existing vaccines are able to protect against any new variants that might emerge, remain key risks, ICRA chief economist Aditi Nayar said.

ICRA expects higher government spending to boost growth in the second half of the year, in contrast to the situation in the first quarter when government consumption expenditure had trailed last year’s levels.

On the vaccination drive, ICRA estimates nearly three-fourths of Indian adults could receive their second COVID-19 vaccine shot by the end of 2021, if the average of 7.9 million daily doses between September 1 and 26, can be sustained.

This should help boost demand for contact-intensive services in the fourth quarter, although some services such as business travel may revert to their pre-Covid levels with a longer lag, the agency pointed out.

Ms. Nayar said increasing vaccine coverage will boost confidence and in turn re-energise demand for contact-intensive services, thus helping revive the portions of the economy worst affected by the pandemic.

While industrial sector trends remain lacklustre in September, indicated by a flattening out of GST e-way bills, and dampened electricity demand due to heavy rains, ICRA noted this is also likely to distort trends in mining and construction. Agriculture, on the other hand, is expected to do better than expected.

“Late sowing has helped to bring the kharif acreage nearly at par with last year’s record area. The first Advance Estimates of crop production signal a robust rise in kharif output, barring coarse cereals and oilseeds, quelling concerns raised by the uneven monsoon and episodes of flooding,” Ms. Nayar said,

While ICRA now expects Agriculture, Forestry and Fishing GVA (gross value added) to grow 3% in the second and third quarters, compared to 2% projected earlier, it expressed concerns about fertilizer availability for the upcoming rabi season as inventory levels are ‘significantly below’ historical levels.

“Rising rural vaccination coverage is likely to boost confidence for the non-farm portion of the rural economy, especially as the scarring caused by the high healthcare costs of the second wave eases,” she noted.

The revision in growth hopes is also premised on anticipation of an uptick in government spending in the second half after it contracted 4.7% in the first quarter.

“The robust upturn in the government’s direct tax revenues and the awaited commencement of inflows from the National Monetisation Pipeline have improved the revenue visibility for the central government. This is likely to have contributed to the withdrawal of the extant cash management guidelines, which should set the stage for accelerated Central Government spending,” Ms. Nayar averred.

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