India may make up much of the ground lost due to COVID in FY22. The economy is likely to grow 19 per cent in nominal terms in the next financial year, the finance ministry has estimated, even as it refrained from giving an estimate if the GDP over the next few months as it can’t make a reliable projection due to COVID.
The GDP contracted by almost 24 per cent in the three months ending June, a quarter in which most economic activities had come to a standstill for almost two months due to the COVID lockdown. Many experts believe the economy will shrink by 6 per cent in the current financial year. As such, the projection of a 19 per cent growth in FY22 will be on a low base.
With the COVID crisis still continuing, the GDP forecasts for the next few months becomes difficult and such it cannot provide the Medium Term Expenditure Framework with rolling targets of indicative expenditure for FY22 and FY23 as required by the FRBM (Fiscal Responsibility and Budget Management) Act, the ministry said.
“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 said, Mint reported.
The Asian Asian Development Bank has said it expects India’s GDP to fall by 9 per cent in FY2020-21. It, however, said the recovery in FY22 is likely to be robust, with the GDP likely to grow by 8 per cent due to a wider resumption in mobility and business activities.
Chief economic advisor K Subramanian has said the core sectors have been witnessing a V-shaped recovery since the lifting of the COVID lockdown. Core sector growth which had declined drastically in April has shown improvement till July, he had said. “The core sector output is clearly showing a V- shaped recovery,” Subramanian had said a few weeks ago.
Later, in an interview, he had also said the India would return to high growth due to the structural reforms of the government, especially with regards to agriculture and labour.