Citigroup revises India GDP forecast down by 80 bps to 9% for FY22

It says the economic impact of the Omicron wave in the fourth quarter could be lower than in previous waves, but activity momentum in the third quarter was much lower than expected

Sluggish growth momentum in the December quarter and emerging risk from the third Covid-19 wave may shave 80 basis points (bps) off India’s real gross domestic product (GDP) growth to 9 per cent for FY22, Citigroup said in its latest estimate.

“While the economic impact of the Omicron wave in the fourth quarter could be lower than previous waves, the activity momentum in the third quarter was much lower than our expectation. This has led us to revise downwards our FY22E real GDP forecast by 80 bps to 9 per cent year-on-year (YoY), largely due to weaker third quarter activity. Consequently, we have also revised FY23E real GDP forecast to 8.3 per cent YoY (versus 8.7 per cent earlier),” Citigroup India Chief Economist Samiran Chakraborty said in a research note on Monday.

Government’s statistics office last week projected 9.2 per cent GDP growth for FY22, well below 9.5 per cent forecast by the International Monetary Fund as well as the Reserve Bank of India, even as the size of the Indian economy is expected to surpass the pre-pandemic level after recovering from a historic contraction in the preceding year.

Economists believe the official GDP data has overlooked the imminent impact of the third wave on growth momentum. With the escalating Covid-19 caseload, many states have imposed night and weekend curfews to curb the spread of the third wave, adversely impacting mobility and contact sensitive services.

India Ratings last week estimated that GDP growth in the March quarter would now stand at 5.7 per cent, 40 bps lower than the agency’s earlier estimate of 6.1 per cent. For the entire FY22, the rating agency expects GDP growth to be 9.3 per cent, 10 basis points lower than its earlier estimate.

Chakraborty said although daily Covid cases were crossing 150,000 already, there were reasons to be hopeful of a less-disruptive Covid wave. “These include lower hospitalisation rates (currently seen in cities like Mumbai and experience from South Africa), shorter Covid wave cycle period (40 days of trough-to-peak of daily cases in SA, compared to 90-100 days in previous waves), higher vaccination coverage (70 per cent second dose for adults in India), and weakening link between Covid and activity,” he said.

While Google mobility has started to decline, the impact of Omicron on overall activity could take a couple of weeks to reflect in the data, Chakraborty said.

“There are reasons to be hopeful of a relatively less-disruptive Covid wave in terms of overall activity. This, along with support from government spending, could cushion the fall in activity momentum in Q4 FY22E,” he said.