New India Country Report by Atradius shows robust recovery but risks remain

India’s economy is forecast to continue its economic growth in 2022, having rebounded by 8.2% in 2021 after a severe 7.0% contraction in 2020. But downside risks remain, according to trade credit insurer Atradius.

The India Country Report by Atradius reveals how, despite coronavirus lockdowns and disruptions hindering growth in H1, the easing of restrictions led to an increase in economic activity throughout H2. India’s economy rebounded by 8.2% in 2021 after a combination of factors including lower interest rates, higher government spending and an accelerated vaccination programme. As a result, Atradius forecasts a healthy 8% increase in GDP for 2022.

Currently, the trade credit insurer predicts domestic consumption will gain momentum throughout 2022. This in turn will support private consumption, which is expected to increase by more than 10% this year. Investment has also strongly rebounded, with a 16% increase from 2021 and is expected to rise by a further 7% in 2022.

However, downside risks remain due to the spread of the Omicron variant. Despite Government efforts to complete the rollout by 2021, only 64% of India’s adult population was fully vaccinated by December 31. Atradius warns that India’s continued economic growth will rely heavily on the success of the vaccine rollout to its remaining unvaccinated population.

Disruptions in manufacturing persist, with the capacity utilisation rate still 20 percentage points below optimal level. Atradius reports credit risk is high in the textiles, paper and machinery/engineering sectors and business performance is below long-term trends. This is partly due to labour shortages and India’s strained relationship with China, impacting industries heavily dependent on imports such as consumer durables and machinery.

Nevertheless, Atradius’ performance report for electronics/ICT, construction, metals, and steel in India upgraded the credit risk from ‘poor’ to ‘fair’ in 2022. ICT added output is forecast to grow by more than 9% in 2022. The construction industry is also expected to grow in 2022, with annual growth of 8% forecast, and the food and beverages output is positive with predicted growth of more than 3% in 2022.

Damien Dawson, Regional Manager for Atradius UK, said: “India has made an incredible economic recovery since 2020 and the outlook across many sectors is promising. However, businesses must ensure they proceed with caution. The increase in activity following the easing of restrictions is set to drive growth in domestic demand over the next year, leading to a rise in imports. This increase, alongside recent disruption to supply chains and an increase in input prices, presents an opportunity for exporters.

“Strategic planning and comprehensive trade credit insurance continue to be vital when entering new trade markets or maintaining good trade relations. At Atradius, our experts continually observe and evaluate global markets to provide accurate insights allowing us to support businesses to identify opportunities, warn of risks and ensure relations progress under a futureproof foundation.”