IMF forecast says country well placed to experience a solid economic recovery in 2021, in contrast to other emerging markets and developing economies.
Strong economic fundamentals and rapid rollout of the Covid-19 vaccine will help India post a stunning 12.5% GDP growth this year, according to the International Monetary Fund (IMF), putting the country on top of the elite league of nations with the fastest economic recovery rates even as it faces the spectre of a virus resurgence.
That assessment came as a Crisil Research report found that a spurt in trade volumes on a low base, coupled with improvement in realisations riding on higher commodity prices, are expected to lift corporate revenue by 15-17 per cent year-on-year in the fourth quarter of fiscal 2021.
According to the IMF, the Indian economy will grow by 12.5 per cent in 2021, while it is expected to grow by 6.9 per cent in 2022. The latest forecasts suggest that India is well placed to experience a solid economic recovery in 2021, in contrast to other emerging markets and developing economies, where it's likely to take longer to return to pre-Covid-19 crisis levels.
"Even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible," IMF chief economist Gita Gopinath said in the latest World Economic Outlook report. "The outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis," she cautioned.
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By contrast, the IMF outlook estimated China – which was the only major economy to have a positive growth rate of 2.3 per cent in 2020 – to grow by 8.6 per cent in 2021 and 5.6 per cent in 2022.
The IMF’s forecast about India is also largely in line with the outlook of other global financial agencies and experts – from Nomura and Moody’s to the World Bank and Fitch.
However, given the large uncertainty surrounding the economic outlook due to the unpredictable nature of the pandemic, the report recommended that policymakers in India and elsewhere “prioritize policies that would be prudent, regardless of the state of the world that prevails — for instance, strengthening social protection with wider eligibility for unemployment insurance to cover the self-employed and informally employed.” It also advocated adequate resources for healthcare, education, vocational training, early childhood development programs and investing in green infrastructure.
The report called for international cooperation, specifically to ensure adequate vaccine access globally, including by sufficiently funding COVAX, the international vaccine facility. “The international community also needs to work together to ensure that financially constrained economies have adequate access to international liquidity so that they can continue needed health care, other social, and infrastructure spending required for development and convergence to higher levels of income per capita,” the IMF report said.
The buoyant outlook for the Indian economy also found similar traction for robust revenue growth across corporate India.
As per the estimates, the double-digit growth forecast by the Crisil report comes after eight quarters of either decline or single digit growth. The estimates are based on an analysis of 300 companies, which account for 55-60 per cent of the market capitalization, excluding financial services and oil companies of the National Stock Exchange.
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"The robust revenue growth rides on a low base of the corresponding year-ago quarter, besides higher government capital expenditure, and higher realisations amid a commodity upcycle, among others,” said Crisil Research Director Hetal Gandhi. “A closer look at the revenue breakup indicates 50 per cent of the recovery is contributed by three key verticals - automobiles, IT services and construction,” he added.
The report cited that construction-linked sectors such as steel and cement are estimated to have seen revenue rise 45-50 per cent and 17- 18 percent on-year, respectively, buoyed by higher realisations and volumes.
However, the report also said that a cloud of uncertainty continues to loom over consumer discretionary services. "Revenue for players in sectors such as airline services is estimated to drop 30 per cent on-year amid social distancing and cut in discretionary expenses, especially travel budgets. Similarly, revenue for players in media and entertainment is also expected to drop 10 per cent on-year due to lower advertisement spends and subscriptions. That said, a lower share of such sectors in the top 300 sectoral mix has muted the impact."
In addition, the report said that due to the second wave, states are likely to mount partial lockdowns, keeping demand recovery uncertain in the near term. "Newer strains of the virus, scale of vaccinations and subsequent revival in demand would be among the key issues to monitor for fiscal 2022."