Despite the low base of last year, the high GDP growth has given confidence that the Indian economy may well grow over 9 percent in FY22, with tailwinds coming from the rapid recovery of the manufacturing and construction sectors.
The data released by the Union Ministry of Statistics on Tuesday showed that the country’s GDP has recovered swiftly to clock a growth of 20.1 percent in the April-June quarter of FY22 as against a contraction of 24.4 percent seen in the same period of the previous year.
Though the Q1 growth is a tad lower than RBI’s expectation of 21.4 percent growth, it is still on course to make a good recovery taking the economy back to its pre-Covid size.
According to Bank of Baroda economic research, GDP is expected to grow at 9.7 percent in FY22. It has said that the improving pace of vaccinations, government tax collections, exports, and corporate investments in select sectors are a tailwind for growth.
Taking a similar line, a report by Kotak Institutional Equities expects GDP growth of 9 percent in FY22 against RBI’s own projections of 9.5 percent growth. But the brokerage has cautioned that growth momentum may get disrupted if a third wave of the pandemic comes before a larger population gets fully vaccinated. Furthermore, one of the key drivers of growth in CYTD21 has been robust external demand, which risks slowing given the increasing Covid cases globally.
Additionally, surging freight costs and container shortages amid logistic bottlenecks pose downside risks to growth. So maybe the pressure of lower agricultural yield this year in the wake of projections of lower than normal monsoon.
The agriculture sector has been pandemic resilient. Its output is 8 percent above the pre-pandemic level. A below-normal monsoon poses a risk to its growth in FY22.
But according to BoB research, manufacturing and construction activity are likely to do well on the back of exports and government spending. Contact intensive services sector is likely to recover with a lag and rising infections in certain states pose a risk to services recovery.