Fitch group company India Ratings on Thursday linked India’s growth to the pace of vaccination and revised down its GDP forecast for the Indian economy from its earlier estimation of 9.6 per cent to 9.4 per cent in 2021-22.

India Ratings said that rise in health expenditure, muted wage growth and decline in household savings added with high consumer inflation are expected to weigh on consumption demand and hence, economic growth.

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The Reserve Bank of India has projected a real GDP growth rate of 9.5 per cent in 2021-22. The estimation of GDP for the April-June quarter will be released by the government on August 31. Due to the extremely low base of a GDP contraction of 24.4 per cent in April-June last year, most economists are projecting a double-digit growth in GDP for the same period this fiscal.

Earlier, India Ratings had said that if the country is able to vaccinate its entire adults (18 and above) population by December 31, 2021, then GDP growth is likely to come in at 9.6 per cent in FY22. If not, it might slip to 9.1 per cent.

Principal Economist Sunil Kumar Sinha said, “Going by the pace of vaccination, it is now almost certain that India will not be able to vaccinate its entire adult population by 31 December 2021.”

According to reports, higher exports, faster recovery after the second wave of COVID-19 and sufficient rainfall will provide support to economic growth. The agency estimates that 5.2 million daily doses would have to be administered August 18 onwards to fully vaccinate more than 88 per cent of the adult population.

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With only exports being seen as the bright spot, the consumption demand story does not look encouraging even from a medium-term perspective.

“Unlike COVID 1.0, which was largely an urban phenomenon, COVID 2.0 spread to rural areas as well. Even if the agricultural output/income remains intact in view of the progress of monsoon so far, rural households are unlikely to loosen their purse strings in view of the COVID-19 induced rise and/or a likely rise in the health expenditure as also the uncertainty/insecurity associated with the likely future waves of COVID-19,” India Ratings said.

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Agricultural and non-agricultural activities have declined lately. “Wage growth even in urban areas has been muted. In fact, urban households, besides the rise in health expenditure, are facing the double whammy of income loss/stagnation coupled with high consumer inflation. All this has severely dented their disposable income,” it said.

It can also be seen that the jobs sector indicates the impact of the pandemic being more pronounced in case of better quality jobs in urban areas, especially salaried jobs after the second wave of the pandemic.

Citing corporate tax ratio and income tax ratio to GDP, India Ratings said that while corporates have been benefiting from the reduced corporate tax announced in FY20, such benefit has remained elusive so far for urban households.

Sinha also said that the recovery trend points to rising inequality after the pandemic that has pushed a large number of people back into poverty.

The rating agency expects the nominal GDP growth to be 15.6 per cent and the average retail inflation at 5.6 per cent.

It also said that the rise in fuel prices is one of the biggest factors feeding inflation, pointing out that RBI has been urging the government to reduce taxes and duties on the commodity.