India's economy is poised to recover and grow at 9.2 percent in FY22, after having contracted by 7.3 percent in the previous financial year FY21 led by services, forecasted Bank of Baroda, in a recent note. It added that the economy is projected to grow by 5.5 percent in the March quarter (Q4FY22) against 5.4 percent in the preceding (December) quarter (Q3FY22).
Resilience in the rural economy, an uptick in bank credit and rising GST collections aided the growth of the Indian economy in the previous fiscal, a note by Bank of Baroda said. As per the government's advance estimates, the gross domestic product (GDP) in FY22 is projected to grow by 8.9 percent with the Q4FY22 GDP growth kept at 4.8 percent.
The National Statistical Office (NSO) will release the final GDP growth numbers for FY22 as well as the March quarter on May 31.
Meanwhile, Moody's Investors Service slashed India's economic growth projection to 8.8 percent for 2022 from 9.1 percent earlier, citing high inflation. In its update to Global Macro Outlook 2022-23, Moody's said high-frequency data suggest that the growth momentum from December quarter 2021 carried through into the first four months this year.
However, the rise in crude oil, food and fertilizer prices will weigh on household finances and spending in the months ahead. Rate hikes to prevent energy and food inflation from becoming more generalized will slow the demand recovery's momentum, Moody's noted. It maintained the FY23 GDP growth forecast at 5.4 percent.
In its report, Bank of Baroda stated that with improvement in mobility indices and opening of the economy along with much lower COVID-19 cases across states, contact-intensive sectors are expected to make a stronger recovery.
"A much needed pick up will be visible in the services sector with travel and hospitality, contributing significantly towards this recovery. Construction is also likely to edge upwards. However, Agriculture growth might be a tad slow as compared to government expectations (3.3 percent against government estimate of 3.5 percent) owing to a lower yield of wheat crops, the conflict between Russia-Ukraine and heatwave conditions," highlighted the report.
BoB said these might pose downside risks to its projections. Industrial growth might be adversely impacted too, it added.
The main factors contributing to the growth include resilience shown by the rural sector with a normal monsoon and higher production of foodgrains; an uptick in bank credit growth to push financial services and improvement in the services sector with passenger traffic (-62 percent to 59 percent), rail freight (2 percent to 15 percent) and port cargo (-4.6 percent to 7 percent) leading the race, said the lender.
Higher GST collections have also provided much-needed support, it added.
However, there are downside risks emanating from the ongoing Russia-Ukraine conflict, soaring commodity prices and acceleration in global inflation going ahead, it cautioned adding that aggravating heatwave conditions have curbed wheat output and have also added some pressure to industrial growth.
A mix of both monetary (RBI frontloading with rate hike) and fiscal policy (reduction in excise duties) at play is expected to boost growth prospects, it contended.
Meanwhile, the International Monetary Fund (IMF) expects India's economy to grow by 9 percent in FY22, while Asian Development Bank (ADB) has projected India's growth at 7.5 percent.
"However, we expect the economy to do much better sequentially especially on the back of base effect and normalisation of economic activity," it noted.
The overall impact of the Omicron variant which resulted in the 3rd wave of COVID-19 seems to be relatively muted than was initially anticipated. Further, rapid pick up in the pace of vaccination programme is also expected to support growth," the report further pointed out.