Crisil flags off downside risks to its FY'22 growth forecast after the second wave

With a sharp surge in COVID-19 cases in the second wave and the consequent lockdown in affected regions, ratings firm Crisil has flagged off downside risks to its growth forecast of 11 per cent for FY'22 in a report released on Monday.
CRISIL’s base GDP growth forecast for fiscal 2022 at stands at 11% but risks are firmly tilted downwards. It has projected two scenarios. One of a moderate downside where GDP growth drops to 9.8%, assuming second wave peaks by May-end. The other of severe downside where GDP growth drops to 8.2%, assuming second wave peaks by June-end.

Comparing with the the last year's restrictions, lockdowns are less restrictive for economic activity, and are concentrated in the most-hit states. Agriculture, construction, manufacturing, and other essential activities are permitted to continue.

Growth in the first half is expected to be supported by a base effect, but clouded by the pandemic’s spread. The recent surge in Covid19 cases has led to high-frequency indicators showing some softening, Crisil said

Growth in the second half would be led by better-spread of economic growth, owing to increased inoculations and better adaptability to the pandemic, which would support sectors that are lagging. Also, H2 should see stronger global growth, supporting India’s exports to an extent.

The manufacturing sector has remained resilient with the purchase managers' index above the 50 expansion mark despite recent regional lockdowns and restrictions. That is because about half of India’s manufacturing output comes from rural areas, where the virus spread and restrictions remain lower than the previous peak. Crisil said.

Also, manufacturing is permitted in the current phase of the lockdown. Besides, a large part of the resilience may be attributed to strong external demand. Restrictions on manufacturing have been minimal so far, unlike last year during the nation-wide lockdown. Agriculture remains unaffected by lockdown restrictions, as last year, according to the ratings firm.

As for services, Crisil said that contact-based services are most vulnerable as they continue to be impacted by the second wave. Moreover, rise in reverse migration could impact construction activity, which has a substantial share in both GVA and workforce.