India’s economy potentially to grow by 12 per cent in 2021 as imminent prospects have turned into favour, subsequently witnessing a contraction of 7.1 per cent last year, as per Moody’s Analytics.
A power-packed December quarter, showing the Indian GDP growth of 0.4 per cent, followed by a 7.5 per cent contraction in the last three months, has turned India’s near-term possibilities more favourable, the report said. External demand accompanied by domestic demand has been on the repair since the restrictions eased out, contributing to improved manufacturing output in recent months.
“We expect private consumption and nonresidential investment to materially pick up over the next few quarters and strengthen the domestic demand revival in 2021,” the report reads.
Moody’s forecasts the Indian GDP growth of 12 per cent in the calendar year 2021, partially owing to a low base-year comparison. The report says, “This forecast is equivalent to real GDP, in level terms, growing by 4.4 per cent above pre-Covid-19 levels (as of March 2020) by the end of 2021, or equivalently, by 5.7 per cent above the GDP level in December 2020 by the end of 2021.”
Moody’s report adds that the country’s monetary and fiscal policy settings will likely remain instrumental in the growth.
“We do not expect any additional rate cuts this year below the current 4 per cent at which the benchmark repurchase rate is being maintained,” said Moody’s Analytics.
Moody’s observed that some additional fiscal support mustered in the last six months of the year, depending on the softness seen in domestic spending.
Moody’s analytics hopes and says, “We expect the budget for fiscal 2021-2022 to drive the annual fiscal deficit to nearly 7 per cent of GDP. It includes additional expenditure on infrastructure development, and the associated benefits in the form of employment creation should accrue over the coming quarters.”
Though, inflation is expected to see a more controlled rise in 2021, the rise in food-price or fuel-driven inflation can become burdensome on household disposable income.
Moody’s Analytics said the only risk factor of a strengthening second wave of COVID-19 remains to witness a recovery in 2021.
The report says, “The good news is that the resurgence appears to be limited to just a few states, which should increase the chances of containing the spread at an early stage.” In addition, it said, “Our baseline forecasts assume that state governments are likely to adopt a targeted approach through limited-duration curfews and shutdowns if the situation deteriorates rather than large-scale shutdowns of the kind.”
“However, the various logistical constraints and the sheer scale of implementation could negatively impact the pace of inoculations in the months ahead and eventually the timing of achieving herd immunity. Our March baseline forecast assumes that herd immunity is unlikely to be reached before the end of 2022,” the report said on Vaccination drive playing a key role in sustaining domestic recovery.