Near-term prospects are favourable but second covid wave is a risk to recovery, it said
Most professional forecasters have projected double-digit growth for India in FY22
India’s gross domestic product (GDP) is projected to grow by 12% in 2021, Moody’s Analytics said on Thursday. In an earlier estimate last November, it had said India’s GDP will grow at 9% in the calendar year.
Near-term prospects for Asia’s third-largest economy have turned more favourable, but a second wave of covid-19 infections is a key risk to recovery, Moody’s Analytics said.
“India’s near-term prospects have turned more favourable following a stronger than expected December quarter, when GDP grew by 0.4% over the year following a 7.5% contraction in the September quarter. Domestic and external demand has been on the mend since the easing of restrictions, which has led to improved manufacturing output in recent months," Moody’s Analytics said in an update to its India Forecast.
Battered by the coronavirus pandemic, Indian economy is officially projected to contract 8% in FY21, in its worst show in more than four decades. However, most professional forecasters have projected double-digit growth for India in FY22, considered mostly a statistical rebound than a V-shaped recovery.
Last week, the Organisation for Economic Co-operation and Development (OECD) said the Indian economy is expected to grow 12.6% in FY22, the highest among G20 countries. Earlier this month, Moody’s Investors Service, which operates independently of its sister organization Moody’s Analytics, had projected the Indian economy to grow 13.7% in FY22. While Moody’s Analytics makes calendar year projections, Moody’s Investors Service provides fiscal year estimates.
Moody’s Analytics said it expects private consumption and non-residential investment to pick up in the next few quarters and strengthen domestic demand revival in 2021. “The strong yearly growth is partially the result of a low base-year comparison. This forecast is equivalent to real GDP, in level terms, growing by 4.4% above pre-covid-19 levels," it said.
However, a key risk to recovery in 2021 remains a strengthening second wave of covid-19, it said. “The good news is that the resurgence appears to be limited to just a few states, which should increase the chances of containing the spread at an early stage. Our baseline forecasts assume that state governments are likely to adopt a targeted approach through limited duration curfews and shutdowns if the situation deteriorates rather than large-scale shutdowns of the kind seen during the first wave."
However, it maintained that vaccinations hold the key to sustaining the domestic recovery. “Total vaccinations crossed the 35 million mark on 16 March. However, the various logistical constraints and the sheer scale of implementation could negatively impact the pace of inoculations in the months ahead and eventually the timing of achieving herd immunity. Our March baseline forecast assumes that herd immunity is unlikely to be reached before the end of 2022," Moody’s Analytics said.