Mar'21 marks the one-year anniversary since the first COVID-19 lockdown. Exactly a year ago, the dreaded virus forced us to stay at home. While we were planning to clean the dust off our official attire, a second wave has hit us. Although Maharashtra, India’s largest state, is witnessing a terrible rise in COVID-19 cases, the second wave is still limited to only a few states.
"The lack of universality of the second wave and the experience of economic costs due to strict lockdowns has made policymakers more patient and relaxed in their actions this time. Though the hope is that the situation doesn't go out-of-hand this time, it certainly imparts downside risks to economic projections at this stage," said Motilal Oswal Financial Services.
"After being on track till Jan'21, the economic growth momentum has weakened in Feb'21. However, we have revised upward our FY22E real GDP growth forecasts to 11% now from 9.5% earlier, but retain our FY23E growth projection at 4%. With the recent deceleration in retail inflation, we have revised down our headline CPI inflation forecast to 4.7%/5.4% from 5.5%/6% for FY22E/FY23E." It believes interest rates have bottomed out and that the Monetary Policy Committee (MPC) can soon shift to ‘neutral’ from its 'accommodative stance'."
"In the absence of any adverse global shock, India's external situation remains extremely comfortable. While the current account is expected to post a deficit in FY22E, India will continue to add foreign exchange (FX) reserves, which is expected to touch USD 650 billion by CY22E-end. It could lead to economic benefits only if RBI accepts higher-than-otherwise current account deficit (CAD), which can happen if the government expands its fiscal deficit. This appears elusive as of now," the broking firm added.
"Considering the recent trends, it is very likely that the total receipts of the Government of India (GoI) will outpace their revised estimates by almost Rs 900 billion (or 0.5% of GDP). Assuming unchanged fiscal spending, GoI's fiscal deficit in FY21E could end up being closer to 9% of GDP, rather than the estimated 9.5%," it said.
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