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The shift to a centralised covid-vaccination drive could boost India’s economic growth prospects, rating agency Icra Ltd. said on Thursday. The agency forecast an 8.5% gross domestic product (GDP) growth for FY22, which could get a further boost with a strong vaccination drive.

“If vaccine coverage is accelerated following the re-centralised procurement policy, the GDP expansion in FY2022 may be as high as 9.5%, with a widening upside" in the third and fourth quarter of FY22, the rating agency said.

Icra made the 8.5% baseline growth forecast looking at the impact of the second wave of Covid-19 and the regional lockdowns across a variety of high frequency indicators in April-May 2021.

“Now that the fresh cases have moderated and restrictions are being eased, we have placed our baseline GDP growth forecast for FY2022 at 8.5%," chief economist Aditi Nayar said in an analysis.

Icra continues to expect a prolonged negative impact of the second wave on consumer sentiment and demand, with healthcare and fuel expenses eating into disposable income and less pent-up demand in FY22 relative to FY21.

Notwithstanding the expectation of a normal monsoon buffering the prospects for crop output and less reverse migration in 2021 compared to the year before, the rating agency expects that the sharp rise in rural infections and loss of employment and remittances to weaken the rural sentiment and demand.

The demand for contact-intensive services will revive gradually as vaccinations become more widespread, Icra said.

If vaccine coverage is accelerated, growth in third quarter could be as high as 6.9% and the fourth at 9.5%, the rating agency said.

After the satiation of the pent-up demand seen during the festive season in 2020, purchases of consumer durables may be restricted, which would impact capacity utilisation in FY22. However, a rise in exports in tune with the expected vaccine-induced rebound in certain large economies, may boost capacity utilisation in export-oriented sectors, the agency said.

“Even as the second wave of Covid-19 infections in India has dampened the near-term outlook for the Indian economy, vaccine optimism has led global commodity prices to soar. ICRA continues to expect subdued domestic demand to constrain pricing power, squeezing margins in many sectors. With the CPI and WPI inflation expected to average 5.2% and 9.2%, respectively, ICRA expects the nominal GDP to expand by 15-16% in FY2022," the agency said.

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