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Indian economy likely to grow 7.7% in Jul-Sep led by multi-speed recovery: Icra

The YoY performance of 14 of the 15 high frequency indicators except non-food bank credit worsened in September compared to August. (File Photo: AFP)Premium
The YoY performance of 14 of the 15 high frequency indicators except non-food bank credit worsened in September compared to August. (File Photo: AFP)

  • There is growing evidence of a K-shaped recovery. This is evidenced by the sharp disparity in performance of stock markets, robust growth in direct tax collections and improved business sentiment, juxtaposed with continued pessimism displayed by urban households

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NEW DELHI: The Indian economy is likely to have grown 7.7% in the September quarter as half of 14 high frequency indicators recovered to their pre-pandemic level during the second quarter of FY22, rating agency ICRA said on Thursday.

Aditi Nayar, chief economist at Icra Ltd, said the economic recovery widened in Q2 of FY22 as the crisis wrought by the second wave of Covid-19 abated, with a larger number of sectors bettering their pre-covid performance, relative to the position in Q1 of FY22. 

"Nevertheless, the revival was multi-speed, with a considerable variation in the pace of growth across sectors. Moreover, there is growing evidence of a K-shaped recovery. This is evidenced by the sharp disparity in the performance of the stock markets, robust growth in direct tax collections and improved business sentiment, juxtaposed with the continued pessimism displayed by urban households in the RBI’s latest consumer confidence survey. The latter is a likely reflection of the lingering income uncertainty being faced by households that are dependent on the less formal and contact-intensive portions of the economy," she said.

The Indian economy grew at a record pace of 20.1% in April-June. The World Bank and Moody’s have projected the Indian economy to grow at 8.3% and 9.3% respectively while the Reserve Bank of India has pegged GDP growth at 9.5% for FY22. 

Icra, however, noted that continued base normalisation, emerging supply-side constraints and excess rainfall dampened the year-on-year (YoY) performance of most of the high frequency indicators in September.

The YoY performance of 14 of the 15 high frequency indicators except non-food bank credit worsened in September compared to August. “This was on account of a combination of factors such as continued base normalisation (especially for motorcycles and scooters, domestic airline passenger traffic, and generation of GST e-way bills), supply side constraints (non-availability of semi-conductors particularly for passenger vehicles or PVs) and excess rainfall (35% above long period average or LPA; on electricity and coal) in September," ICRA said.

Nayar said based on the total number of first doses of covid-19 vaccines administered, the split between the different varieties and the relevant gaps between the two doses, ICRA now expects 60-65% of Indian adults will be fully vaccinated by end-December 2021, a sharp step up from the current 30%. “This will propel confidence, especially demand for the contact-intensive services during Q4 FY22," Nayar said.

Icra said early data reveals mixed trends for October 2021. Electricity demand growth has risen mildly to 2.7% in Oct 1-19, 2021 from 0.8% in Sep 2021, with demand contained by the dip in temperature levels with surplus rainfall amid concerns regarding coal availability. “While the sales of state refiners in the first half of October exceeded the pre-covid levels for petrol, those for diesel declined," it added.

Nayar said she expects the daily average generation of the GST e-way bills in October to surpass the peaks seen in February-March 2021, boosted by healthy demand during the festive season. “However, supply-side constraints would dampen output in sectors such as automobiles, with the semi-conductor shortage set to supress production in October as well," Nayar added.

 

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