Covid-19 to push back this feat by three years. BofA had earlier projected this in 2017 and had expected the Indian economy to achieve this status by 2028
Puneet Wadhwa |
Last Updated at March 22, 2021 14:17 IST
India is likely to emerge as the world’s third largest economy in 2031 (fiscal 2031-32), suggests a recent report by BofA Securities, and should touch Japan’s nominal GDP (in USD) that year. The projections have assumed 6 per cent real growth rate, 5 per cent inflation and 2 per cent depreciation. Currently, India is the world’s sixth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP).
Besides, BofA Securities has identified two additional drivers – forex reserves buffer and softer real lending rates – that can help the country become the world’s third largest over the years.
“We have conservatively taken a lower 9 per cent growth and pushed back by three years to 2031/FY32. Our projection of 6 per cent real growth is actually below the 6.5 per cent average since 2014 and our estimated 7 per cent potential. 5 per cent inflation (from 6 per cent earlier) corroborates to recent threshold inflation estimates. Finally, we have reduced average annual depreciation to 2 per cent from 3 per cent with the Reserve Bank of India (RBI) re-achieving adequacy of FX reserves,” wrote Indranil Sen Gupta, India Economist at BofA Securities in a co-authored note with Aastha Gudwani.
Rising oil prices that can stoke inflation are a cause for concern, BofA said, and pose a risk to the projections.
“Sustained $100 /barrel (bbl.) oil would push the current account deficit beyond the sustainable 2 per cent of GDP level and pose a downside risk. Estimate FY22 current account deficit at 0.8 per cent of GDP at $60/bbl. Every $10/bbl. increase the current account deficit by $9 billion/0.3 per cent of GDP,” Gupta and Gudwani wrote.
Besides rising commodity prices, especially crude oil, rising Covid-19 cases across the country, analysts say, are another risk that can dent the fragile economic recovery in the short-to-medium term. The impact, however, will be less severe as compared to one on account of the full-scale lockdown in 2020.
“The resurgence of pandemic cases in the state of Maharashtra is a matter of concern, but it is too early to consider it a pan-national second wave. We do not yet see this as a threat to our medium-term outlook, as virus resurgences in other countries have proven less economically disruptive than originally feared,” wrote Sonal Varma, managing director and chief India economist at Nomura, in a recent co-authored note with Aurodeep Nandi.
Tailwinds to growth remain intact from the lagged impact of easy financial conditions, fiscal activism, strong global growth and the ‘vaccine pivot’ point, Nomura said.
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