Crisil Says Infrastructure, PLI Projects Will Drive India’s Growth Next Fiscal
Projecting next year’s growth to be a story of two halves, Crisil Ratings said higher infrastructure investments and performance-linked incentive projects will drive investments and boost India’s gross domestic product.
Like others, Crisil also expects growth to rebound to 11% in the financial year 2021-22, after “an estimated 8% contraction” this fiscal.
The agency sees four positive drivers converging next fiscal -- people learning to live with the new normal after the pandemic, flattening of the coronavirus infection curve, more vaccinations, and investment-focused government spending.
"Our medium-term growth now hinges on a kick-start of the investment cycle."
Crisil Managing Director and Chief Executive Officer Ashu Suyash said, "There are early positive signs, powered by government spending through the national infrastructure pipeline, demand-driven capex (capital expenditure), and the production-linked incentive scheme."
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But, the pace of growth will be different in the first and second halves as was in the outgoing year, with the first half benefitting optically from the low-base effect, second half seeing a more broad-based pick-up in economic activity, owing to rising commodity prices, large-scale vaccination and a likely stronger global growth, she said.
Suyash was also quick to warn that recovery will not be easy, with small businesses and the urban poor still suffering from the impact of the pandemic, and urban markets and services still lagging manufacturing in recovery, even as the rural economy remains more resilient.
Trade has also normalised faster than the rest of the economy with both exports and imports scaling back to pre-pandemic levels.
While exports recovery has been good for large industries and agriculture and allied sectors, it remains weak for gems and jewellery, garments, and leather products that are labour-intensive and small in scale.
Beyond 2021-22, agency's Chief Economist Dharmakirti Joshi sees growth averaging at 6.3% between fiscals 2023 and 2025. It is lower than 6.7% average in the decade preceding the pandemic, but higher than 5.8% average in the three fiscals before.
Yet, the economy will suffer a permanent loss of 11% of GDP, which in real terms means the size of the economy will grow by a mere 2% in 2021-22 over 2019-20, he said.
Expecting the dynamics of domestic demand and trade to continue to be unfavourable for small businesses, he called for continued policy support for them and for the urban poor, who have borne the brunt of the pandemic.
Meanwhile, corporate revenue growth has surprised with a V-shaped recovery in the first nine months of this fiscal by cresting three tailwinds resilience in software and pharam exports, the commodity upcycle, and price hikes offsetting volume declines in automobiles.
Accordingly, the agency pencils in a 15-16% revenue growth led by volume recovery across sectors and higher public investments, especially in roads, railways, and urban infrastructure.
Shorn of the optical base effect, revenue will be only 8-9% higher in 2021-22 than in 2018-19. Operating profit margin, which touched a decadal high this fiscal, should sustain despite some cost pressure, he said.
Given this, the medium-term growth prospects hinge critically on revival of the investment cycle, something that has been missing for so many years now.
Next fiscal, many pieces can fall into place leading to 20-25% overall growth in investments to Rs 14.6 lakh crore. The push by the Centre and the states on roads, railways and urban transport, will drive up overall infrastructure investments 17-20%, said its Chief Operating Officer Amish Mehta.
Expecting a 45-55% spike in corporate capex next fiscal, he says this will be driven by large companies in core industrial segments that have gained market share and are operating at higher-than-industry-average utilisation rates, pushing pedal on capex after staying away last fiscal; and secondly time-bound PLI-driven projects.
Among core industrial sectors, cement and metals are expected to see healthy investments; while for others, a meaningful recovery will be at least two years away.
According to Crisil analysis, the potential incremental revenue generation from the PLI scheme is Rs 35-40 lakh crore over the next five years across 14 covered sectors.