NEW DELHI: After a sharp contraction this fiscal, India’s economy is likely to bounce back to grow by as much as 19% in nominal terms in FY22, albeit on a low base, as per finance ministry’s estimates.
The projection is a bit modest when compared with some estimates that the Fifteenth Finance Commission (FFC) has received from experts, the Commission’s chairman NK Singh told Mint in an interview, citing a presentation made by Krishnamurthy Subramanian., chief economic advisor in the finance ministry.
“Going forward, we had to make projections about the rebound from a very low base year. There are varied estimates. The chief economic advisor said in the presentation it could go as high as 19%, while some had even said it could be 21% as an extreme case and others said it could be more modest,” said Singh, terming the rebound mechanical as it comes on a low base.
In a separate interview with Mint last week, Subramanian had said though the pandemic may have an adverse impact on the Indian economy for some quarters this fiscal, the country will get back to a high growth trajectory due to the structural reforms it has been undertaking. “When you take into account some of the reforms that have been done on the agriculture side, on labour, on privatization, all those together will increase productivity in the economy and therefore will help bringing back growth,” he had said.
The finance ministry has not put out any GDP estimates for the current financial year while most forecasters have projected a double digit contraction in FY21.
In its latest forecast issued on 11 September, Moody’s Investors Service had projected a 10.6% real GDP growth and a 4% CPI inflation for FY22, after an 11.5% contraction in the current fiscal.
In a statement laid down in the Parliament on Friday, the finance ministry said it is not able to submit Medium Term Expenditure Framework with rolling targets of indicative expenditure for FY22 and FY23 as mandated under the FRBM (Fiscal Responsibility and Budget Management) Act because it is not possible to obtain reliable projections of GDP growth at this time due to the continuing impact of COVID-19 pandemic on the Indian economy.
“The expenditure of Union government in the medium term is determined partly by the GDP growth as governmental expenditure will have to substitute any slack in aggregate demand from the non-government sector. Determining expenditure based on non-robust GDP estimate has the danger of keeping the economy below its true growth potential. An emerging economy like India cannot afford to be below its growth potential for long,” it added.
Experts have said that the rebound in FY22 may look strong but the GDP may be behind what it was in FY20. National Statistical Office has estimated India’s GDP to be ₹203.4 trillion in FY20.
“One big determinant of return to normal economic activity is the discovery of an effective vaccine and mass inoculation,” said DK Joshi, chief economist at Crisil Ltd. “Our expectation is 10% real GDP growth for FY22 over a 9% contraction in current fiscal,” said Joshi.