India’s real GDP growth is expected to rebound to 11.5% year on year in the next fiscal (FY22) as the Covid-19 situation has stabilized, UBS said.
While economic growth in FY22 could be at a multi-decade high, this largely reflects the rebound from deeper contraction in FY21 GDP, which is expected to fall 7.5% as per UBS estimate.
It estimates the bounce-back in India’s economic growth in FY22 will be largely led by continued improvement in consumption, stronger global growth and the success in rolling out a Covid-19 vaccine, including the speed of distribution and its effectiveness.
The focus on growth supportive reforms is also likely to contribute.
However, it expects growth to moderate to 6% year on year in FY23 as domestic and global financial conditions begin to normalize, the debt overhang constrains government spending and labour market pressures affect demand and the savings and investment outlook.
The silver lining could be that improved reform momentum will start to be reflected in terms of higher productivity and output from FY23 onward, which could offset some of these factors.
It expects CPI inflation to average 4.4% and 4.5% year on year respectively in FY22 and FY23. UBS sees USD/INR to remain largely range-bound in Rupees 72-77/dollar in FY22 and FY23.