Even though the worst of the pandemic appears to be behind, India may see only modest improvement in economic activity in the September quarter of FY22 after a torrid second wave held back the country’s economic rebound in the June quarter, Singapore based DBS Bank said in a report released on Thursday.
“A favourable base effect (the economy contracted 24% during April-June 2020) will help produce a large positive growth number in the June quarter, but our nowcast model estimates those effects to fade somewhat in the September quarter, with growth easing to 6.8%. The risk to the outlook is characterized by contrasting factors—on the plus side, the export engine could hum owing to strong external demand; on the negative side, domestic consumption and investment could get postponed by mobility restrictions; high fuel prices can also be a potential drag,” DBS chief economist Taimur Baig said in the report.
The Reserve Bank of India has projected GDP to grow at 18.5% in the June quarter and 7.9% in the September quarter with full financial year growth at 9.5%.
“Mass vaccination will take many months, with only 5% of the population fully inoculated so far. Reopening the economy will have to be rather gradual as fears of a third wave of the pandemic, driven by the delta plus variant, have spread lately,” the DBS report said.
Despite ample liquidity, exceptionally low interest rates, and public sector support, private sector credit growth remains well below trend, DBS said. “India entered the pandemic on a weak ground, with the economy slowing substantially through the course of 2019. The resulting balance sheet stress continues to act as a drag on the economy, although attempts to revive manufacturing have caught the attention of global investors. Strong capital inflow and favourable external accounts have held India in good stead during this challenging year. Near-term economic prospects for India however have yet to brighten considerably,” Baig said.
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