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India's GDP growth has been projected at 8.5 per cent in FY22, said ratings agency ICRA.

As per the ratings agency, the year-on-year (YoY) growth of GDP and gross value added (GVA) at basic prices (at constant 2011-12 prices) is expected to reach 8.5 per cent and 7.3 per cent respectively, in FY2022.

"If vaccine coverage is accelerated following the re-centralised procurement policy, the GDP expansion in FY2022 may be as high as 9.5 per cent, with a widening upside in Q3 FY2022 and Q4 FY2022," the rating agency said.

For the full year, ICRA expects the GDP growth to exceed the GVA growth by 120 basis points, based on the expectations related to the value of taxes on products and subsidies on products in FY2022.

"ICRA has taken into account the likely higher outgo towards food subsidies by the Government of India (GoI) in FY2022, relative to the budgeted level, following the decision to provide free food grains in May-November 2021."

Besides, it has excluded the impact of the release of food subsidy arrears in FY2021, based on the clarification provided by the National Statistical Office (NSO).

Furthermore, ICRA continues to expect a prolonged negative impact of the second wave on consumer sentiment and demand with healthcare and fuel expenses eating into disposable income, and less pent-up replacement demand in FY2022 relative to FY2021.

"Notwithstanding the expectation of a normal monsoon buffering the prospects for crop output and less reverse migration in 2021 compared to 2020, we expect the combination of the sharp rise in rural infections, loss of employment as well as remittances to weaken the rural sentiment and demand."

Moreover, the demand for contact-intensive services will revive gradually, as the Covid-19 vaccinations become more widespread.

According to Aditi Nayar, Chief Economist, ICRA: "The impact of the second wave of Covid-19 and the ensuing state-wise restrictions was seen across a variety of high frequency indicators in April-May 2021."

"Now that the fresh cases have moderated, and restrictions are being eased, we have placed our baseline GDP growth forecast for FY2022 at 8.5 per cent."