Nayar said Icra
expected a multi-speed recovery in FY22, with 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 GDP in real terms in FY22, to be only mildly higher than the level recorded in FY20,” she said.
Icra projected headline retail price inflation to drop to 4.6 per cent in FY22 from 6.4 per cent in FY21, while 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 retail food inflation to an average 4.7 per cent the next financial year from eight per cent expected in the current financial year despite pressure from edible oils, and protein items such as pulses.
Additionally, Icra anticipated that the economic recovery will exert a divergent impact on the twin deficits, with a decline in the fiscal deficit, and a reversion of the current account to a deficit in FY22 from the surplus expected in the current financial year.
“As the revenue shock ebbs, we see India’s general government (Centre plus states) fiscal deficit moderating to 8.5 per cent of GDP in FY22 from 12-12.5 per cent of GDP likely this year. However, with imports seen reviving in tune with anticipated recovery in domestic demand, the current account balance is forecast to slip back into a modest deficit of $15-20 billion (0.6 per cent of GDP) in FY22 from a surplus of $35-40 billion in FY21,” Nayar added.