'India's FY22 Double-Digit Growth Target Highly Ambitious'

The Indian economy looking to register strong double-digit growth in FY22 to recover quickly from the current bout of Covid-19-induced slowdown may have set itself an ambitious target that would be hard to achieve given the continuing weak debt growth indicating that the uptick in economic activity remains subdued.

According to a brokerage report, the debt growth in the non-government non-financial (NGNF) sector, meaning household and corporate sectors, remains tepid indicating weaker economic activity. The NGNF debt grew just 5.0 per cent YoY in 3QFY21 - only marginally better than the record low growth of 4.6 per cent in 2QFY21.

Within the NGNF sector, household debt grew at a decent 9.6 per cent YoY in 3QFY21 (v/s 8.7% in the previous quarter) but non-financial corporate (NFC) debt grew mere 2.0 per cent YoY, similar to 2QFY21 levels as corporates still remained sceptical about the overall economic situation and rekey at t to commit more investments at this juncture.

"Such weak debt growth confirms the uptick in economic activity remains subdued. Coupled with our argument that COVID-19 may adversely impact India's household income, this implies that a strong recovery looks highly ambitious," Motilal Oswal Financial Services said in its EcoScope report.

During the time of the pandemic, it is the government that has borrowed the maximum to provide stimulus to the economy in the absence of private corporate investment. So against India's non-financial sector (NFS) debt growth of 10.3 per cent YoY in 3QFY21 (the highest growth in six quarters), it the general government (center + states) debt that grew at a decade high of 16.3 per cent YoY and not the household and corporate sector.

So, while India's NFS debt stood at Rs 338 lakh crore in 3QFY21, up from Rs 314 lakh crore in 4QFY20 and Rs 330 lakh crore in 2QFY21, the 85 per cent increase in NFS debt in FY21 is attributable to the government sector as the corporate sector grew only marginally and households saw decent, but slower, growth in their outstanding debt.