Economy may grow by 10.1% in FY22: ICRA

Current account may revert to deficit with an expected rise in imports

ICRA has projected the economy to grow by double digits at 10.1 per cent in the next financial year but it cautioned that the value of the gross domestic product (GDP) will only mildly surpass the level that had been recorded in 2019-20. India’s economy is expected to contract by 7.7 per cent in the current financial year according to official advance estimates, but ICRA pegged the GDP fall at 7.8 per cent.

The rating agency expected the stance of the monetary policy to change to neutral from accommodative in the August 2021 policy review or later, once there was greater certainty on the durability of the awaited economic revival.

Aditi Nayar, principal economist, ICRA, said, “The seemingly sharp expansion will be led by the continued normalisation in economic activities as the roll-out of Covid-19 vaccines gathers traction, as well as the low base."

Nayar said ICRA expected a multi-speed recovery in FY22, with the contact-intensive sectors, discretionary consumption and investment by the private sector trailing the rest of the economy, in the arduous march back to attaining, and sustaining, pre- Covid levels. “On a sobering note, we project the aggregate value of the GDP in real terms in FY22, to be only mildly higher than the level recorded in FY20,” she said.

ICRA projected the headline retail price inflation to decline to 4.6 per cent in FY22 from 6.4 per cent in FY21, still exceeding the mid-point of the monetary policy committee’s (MPC’S) medium target of four per cent for the third consecutive year. A favourable base would moderate the retail food inflation to an average of 4.7 per cent in the next financial year from the eight per cent expected in the current financial year despite the pressure from edible oils, and protein items such as pulses.

Additionally, ICRA anticipated that the economic recovery would exert a divergent impact on the twin deficits, with a decline in the fiscal deficit, and a return of the current account to a deficit in FY22 from the surplus expected in the current financial year.