While the Reserve Bank of India has projected GDP to grow at 10.5%, the International Monetary Fund—after the second wave of Covid hit the country—slashed India's growth forecast for FY22 to 9.5% from the 12.5% predicted in April 2021.

However, SBI chairman Dinesh Khara is not downbeat in his outlook. “Economic activity has come back with unlocking underway since June 16. I feel it (FY22) should look even better because the past three quarters saw hardly any economic activity. While the impact in Q1 has been quite severe, nevertheless, the rate of vaccination and the support extended by the Centre through the ECGLS—including the emphasis on healthcare infrastructure—will go a long way in creating economic activity,” Khara told Fortune India.

Thus far India has administered 554 million doses, with 46% of the estimated 944 million adults getting at least one dose, while only 13% of the population have been fully vaccinated with the second dose. Khara is optimistic about the impact of vaccination. “Given the pace of vaccination, the economy’s ability to handle Covid has grown substantially and also in the second wave it was not a universal lockdown,” said Khara.

While the RBI has kept interest rates unchanged in its recent monetary policy meeting, there is a growing concern around inflationary pressures in the economy. The RBI decided to keep the policy repo rate unchanged at 4% and continue with an accommodative stance as long as necessary to revive and sustain growth. However, the central bank has revised its inflation projection for the current fiscal year to 5.7% from 5.1%; inflation had hit 6.3% in May and June, before falling to 5.6% in July.

Khara, however, feels the pressure on inflation is not an outcome of growth. “Though it was not a total disruption of economic activity, supply chains certainly got disrupted and perhaps the impact of which was seen in the inflation. It’s not attributed as much to the demand side as it is attributed to the supply side,” said the SBI chairman.

Though the impact of higher fuel prices has been a big contributor to the spike in inflation, Khara expects the pressure to ease off if the monsoons are good. “Once the supply constraints are addressed and on the back of a good monsoon, inflation should come within the range of the Monetary Policy Committee.”

While interest rates have been benign for a while, credit growth has been struggling—with credit growth of commercial banks slowing to 5.8% in June against 6.2% a year ago, as lending to the industry—which accounts for 27% of the overall credit outstanding— is still to find its feet. While Khara feels interest rates have bottomed out, he is optimistic about growth coming back. “If you look beyond the near term, for revival of growth, interest rate may not be the only determinant but nevertheless a soft interest rate will encourage people to borrow and that will trigger a revival of the economic cycle.”

The government’s emphasis on infrastructure spending is expected to be the biggest driver for a growth recovery. The Union Budget for FY22 increased the outlay by 34% for capital expenditure—from ₹4.2 lakh crore ($56 billion) budgeted in FY21 to ₹5.4 lakh crore ($76 billion). “With the kind of focus on the infrastructure—particularly the roads sector—I am sure it will be one of the frontline sectors to revive the economy,” said Khara.

Besides infrastructure, exports are another sector that is expected to offer a window of opportunity for India Inc. According to India Ratings, despite India's average monthly exports in FY20 were $26.14 billion, the monthly average has spiked up to $31.80 billion in the first quarter of the current fiscal. While Khara feels the momentum is largely on account of growth coming back in western economies, he believes the biggest driver for the core sector in India will be China’s inward focus. “With China taking care of its own economy, it gives an opportunity for Indian steel manufacturers to export and that is another very important factor which will contribute to the growth. Besides, I think FMCG and pharma would be the other sectors that will become the growth engine for the economy,” added Khara.

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