In its report Economic Research: Asia-Pacific's Recovery Regains Its Footing, S&P said a gradual revival is underway after a severe second COVID-19 outbreak in April and May led to lockdowns across much of the country and to a sharp contraction in economic activity. The lockdowns were more targeted compared with the blanket national lockdown seen last year but were still enough to lower discretionary mobility to more than 60% below normal.
According to S&P, the country's manufacturing and exports were less severely affected compared with 2020, but services were acutely disrupted. Consumption indicators such as vehicle sales fell sharply in May 2021 and consumer confidence remains downbeat.
In the report, S&P said, "The economy has turned a corner now. New COVID-19 cases have been falling consistently and mobility is recovering. We expect this recovery to be less steep compared with the bounce in late 2020 and early 2021. Households are running down saving buffers to support consumption and a desire to rebuild saving could hold back spending even as the economy reopens."
Further, S&P said, "Monetary and fiscal policies will remain accommodative but new stimulus will not be forthcoming. The Reserve Bank of India (RBI) is likely to focus its policy efforts on quantity channels rather than interest rate changes. Inflation is now running hot at above 6%, the upper end of the central bank target range, meaning the RBI has no room to cut interest rates."
"Fiscal policy is constrained by limited policy space, particularly because the budget for fiscal 2022 (ending March 31, 2022), which was decided before the second COVID-19 wave, had already targeted a large general government deficit of 9.5% of GDP," S&P added.
Concluding, S&P said, "We forecast growth of 9.5% this fiscal year from our March forecast of 11.0%. In fiscal 2023 (ends March 31, 2023), growth will likely come in at 7.8%. Permanent damage to private and public sector balance sheets will constrain growth over the next couple of years. Further pandemic waves are a risk to the outlook given that only about 15% of the population has received at least one vaccine dose so far, although vaccine supplies are expected to ramp up."