ICRA pegs India's GDP growth at 20% for Q1 FY2022 due to 'robust government spending'

Credit rating agency ICRA has estimated India's year-on-year growth of GDP and gross value added (GVA) at basic prices (at constant 2011-12 prices) at 20% and 17% respectively in the first quarter of FY2022, benefitting from healthy Central and state government capital spending, robust merchandise exports and resilient demand from the farm sector. Regardless, the muted base of last year's nationwide lockdown has aided in concealing the impact of the second COVID-19 wave. 

Aditi Nayar, Chief Economist at ICRA Ltd, informed, "Based on our assessment of volumes and available earnings, we have forecast the GVA expansion in the industry at a considerable 37.5 percent in Q1 FY2022, led by construction and manufacturing, which experienced significantly less curbs in the just-concluded quarter compared to the situation during last year's stringent nationwide lockdown".

She added, "In particular, construction activity benefitted from the healthy Central and the state government CAPEX spending in Q1FY2022 which exceeded even the pre-Covid levels of Q1 FY2020". 

COVID-19 and India's GDP

Referring to the impact of the second COVID-19 wave in rural India, Nayar said, healthy crop output, and procurement, as well as higher minimum support prices, appear to have buffered the farm sector's demand during this challenging period. "The GVA growth in agriculture, forestry, and fishing are likely to print at 3%, benefiting from the healthy rabi harvest," she added. 

ICRA has cautioned that the organized sector is expected to have gained at the cost of less formal space during this period. The available statistics are often unable to capture the pain experienced by the latter, which may result in an overestimation of growth under the present circumstances. Nayar said that the consumer confidence survey conducted by the
 RBI serves as a useful proxy for demand from the less formal sectors. 

"Its July 2021 round indicated that the Current Situation Index barely rose to 48.6 from the record-low 48.5 in May 2021 round, highlighting the continued impact of the loss of income and employment, as well as higher medical expenses experienced by many households as a result of the second wave of COVID-19," Nayar informed. 

(With inputs from ANI, Image: Shutterstock)