The government’s push towards boosting capital expenditure, especially on infrastructure, its focus on manufacturing and on exports could result in the next set of growth drivers, UBS Securities said in a report.
“We maintain our base case estimate of India’s real GDP growth at 8.9% YoY in FY22 (consensus: 9.2%),” Tanvee Gupta Jain, Chief India Economist, UBS Securities said in a statement. “In our view, the government’s push towards boosting capex, especially on infrastructure, focus on manufacturing and exports could be the next growth drivers. Our Activity Indicator suggests economic activity rebounded in the September quarter,” she added.
In the near term, growth is expected to gain momentum between October and March on cyclical tailwinds including pent-up demand, largely led by contact-intensive services, especially after more people are vaccinated, as per the report. Besides, favourable external demand and higher government spending (likely towards capex) would aid growth.
“The key question is: what will drive India’s growth beyond FY22 as the economy emerges from the COVID-19 shock?’ UBS Securities asked. It said the formal sector seemed to have gained market share during the pandemic period while the unorganised / informal economy has suffered; this has not been adequately captured in the GDP numbers at the current juncture, it said.
“The scarring caused by the pandemic has adversely affected the employment and income levels of workers in the informal sector (largely in non-agriculture in the rural areas and high-contact services in the urban areas),” it said.
It said the risk of a third wave lingers, considering the upcoming festive season when mobility and social gatherings are likely to pick up.
