Executive summary
CRISIL expects India’s gross domestic product (GDP) growth to rebound to 11% in fiscal 2022, after an estimated 8% contraction this fiscal, as four drivers – people learning to live with the new normal, flattening of the Covid-19 affliction curve, rollout of vaccinations, and investment-focused government spending – converge.
However, as in this fiscal, the pace of growth will differ in the first and second halves next fiscal. While the first half will benefit optically because of low-base effect, the second half will see a more broad-based pick-up in economic activity.
But recovery would not be easy, with scars of the pandemic running deep for small businesses and the urban poor; the rural economy has been more resilient versus the urban, and services are lagging manufacturing in recovery. Trade has also normalised faster than the rest of the economy, with both exports and imports scaling pre-pandemic levels.
GDP growth would average 6.3% between fiscals 2023 and 2025. That would be lower than the 6.7% average growth seen in the decade preceding the pandemic, but higher than the 5.8% average in the three fiscals prior.
Despite the growth, the Indian economy will suffer a permanent loss of 11% of GDP in real terms over fiscals 2022-2025. The size of the economy next fiscal will be a mere 2% bigger in real terms than in fiscal 2020.
As for corporate revenue, a study of ~800 firms across 35 sectors – excluding oil, banking, financial services and insurance – for the first nine months of this fiscal shows contraction of only 8% on average compared with far grimmer prognostications at the peak of the pandemic.
Next fiscal, revenue should grow 15-16%, led by volume recovery across sectors on two consecutive low-base years and higher investment spend by the government, especially on core infra segments of roads, railways and urban infrastructure. Shorn of the optical base-effect, revenue will be only 8-9% higher than in fiscal 2019.
CRISIL Research’s analysis of Production-Linked Incentive (PLI) scheme indicates potential incremental revenue generation of Rs 35-40 lakh crore over the coming five fiscals across 14 sectors, aided by Rs 2-2.7 lakh crore capex in the next 24-30 months.
The incentive-to-capex ratio is particularly attractive at >3.5 times for mobile phones, electronics, telecom equipment, and IT hardware where our local manufacturing base is relatively low.
As for bank credit, it is seen growing 400-500 basis points (bps) higher at 9-10% next fiscal, riding on economic recovery, and policy and regulatory spurs.
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