Growth Outlook Brightens But COVID-19 Casting A Shadow: Poll

Downside risks remain high as coronavirus cases touched a peak not seen since October 11.

India’s economy will grow at a faster pace this fiscal year than previously thought, according to a Reuters poll of economists who warned a surge in coronavirus cases was the biggest risk to growth.

Downside risks remain high as daily reported coronavirus cases touched a peak not seen since October 11 on Thursday and a few states have renewed restrictions, although the continuing vaccination drive could avoid a complete lockdown.

The March 26-April 1 poll showed economists now expect the economy to grow a record 27.0 per cent this quarter after expanding only 1.5 per cent in the January-March period compared to 21.1 per cent and 1.0 per cent predicted previously.

It would then grow 10.0 per cent next quarter and 5.9 per cent and 6.0 per cent in the following two quarters. Those predictions were an uptick from 9.1 per cent, 5.9 per cent and 5.5 per cent respectively.

But nearly 70 per cent of economists, or 31 of 45, who responded to an additional question said the biggest risk to the economy this fiscal year was a rise in coronavirus cases. Ten picked said inflation.

“It is reasonably clear that the pandemic would worsen before it gets better, as it has been in other countries. The economic damage may be far less given strict lockdowns are unlikely,” said Abhishek Upadhyay, senior economist at ICICI Securities.

“The biggest risk to economic recovery would be in case there is greater evidence of reinfections from the new strains of the virus that also turn out to be less deterred by the existing vaccines.”

With the third highest number of reported COVID-19 cases – over 12 million infections – lagging only the United States and Brazil, India has so far injected 64 million vaccine doses.

Still, the poll of over 45 economists showed Asia’s third largest economy would expand 11.0 per cent in the fiscal year 2021-22 and 6.5 per cent next, from 9.5 per cent and 6.0 per cent predicted in January. It likely contracted 7.5 per cent in 2020-2021 compared to -8.0 per cent predicted previously.

“India’s economy has been (one of) the worst-affected by COVID-19 but has also been (one of) the fastest to recover from the slump,” said Prakash Sakpal, senior Asia economist at ING.

“However, the second wave of the pandemic paves the way for a bumpy ride again this year, while structural bottlenecks will continue to hold back India’s economic potential for years to come.”

The risk the pandemic hurts economic growth significantly this year was high, said 29 of 45 economists including one who said it was very high.

“We acknowledge the downside risks to our FY22 GDP growth forecast should movement restrictions be tightened across the country,” noted Anubhuti Sahay, head of South Asia economic research at Standard Chartered.

“However, it is too early to build in the impact. The ‘shock and awe’ of FY21 is unlikely to be repeated this year.”

India on Thursday reversed its decision to lower interest rates by up to 1.1 per cent on its state-backed small savings programme. Small savings are the lifeblood of low- and middle-income groups, and cutting rates would have dealt a severe blow to millions.

The RBI was predicted to hike rates by 25 basis points in the first quarter of next fiscal year to 4.25 per cent, compared to no change until at least 2023 expected previously.

“Although we do not expect the imposition of another nationwide lockdown, the RBI may want to keep its powder dry to ward off the potentially debilitating impact of the resurging pandemic,” said Kunal Kundu, India economist at Societe Generale.

Inflation was expected at 4.9 per cent and 4.5 per cent in the current and next fiscal year, within the central bank’s target band of 2-6 per cent, but 39 of 44 economists in response to an additional question said their price forecasts were skewed more to the upside.

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