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Time To Plot Growth

Two years of the Covid-19 pandemic has no doubt severely eroded India’s real GDP but there are some green shoots that are reinforcing faster recovery

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How’s the economy faring? That’s the question topmost in everyone’s mind as India, experiencing a lull in the raging Covid pandemic, tries to ease curbs to facilitate revival of economic activity. Let’s hear what experts and data points have to say. To being with, the International Monetary Fund (IMF), in its July forecast, came out with its revised estimate of India’s deficit and debt relative to GDP for FY22. It pegged the general government fiscal deficit to GDP ratio at (-) 11.3 per cent, which is, in fact, the third-highest among major advanced and emerging market economies, after the US and the UK. While that may be worrisome, there are a number of green shoots that point to a robust and sustainable recovery going forward.

The recently launched National Monetisation Pipeline, which is estimated to garner Rs 6 lakh crore over FY22 to FY25, may contribute Rs 88,000 crore in FY22, but that comes with a cautionary note. “The aggregate as well as year-on-year value under NMP is only an indicative value. The actual realisation for public assets may depend on the timing, transaction structuring, investor interest, etc.,” a senior official said.

The recent data on GST collections are more than encouraging. In fact, the collections are growing on a month-on-month basis. The July 2021 GST collections stood at Rs 1,16,393 crore, which was an impressive gain over Rs 92,849 crore collected in June 2021. The merchandise exports growth (y-o-y) also remained high at 49.8 per cent in July 2021 due to partly favourable base effects. “Compared to July 2019 levels, exports grew 34.5 per cent reflecting pickup in external demand, said D.K. Srivastava, Chief Policy Advisor, EY India.

According to officials in the finance ministry, the bank credit growth has showed encouraging trends with non-food credit growth crossing the 6.5 per cent mark in the fortnight ending July 16. This happened after having remained muted for nine fortnights. “On the sectoral front, credit off take by agriculture and allied activities, micro, small and medium industries registered accelerated growth in June, demonstrating positive effects of the implementation of Aatmanirbhar Bharat package,” an official said.

Another factor for remaining bullish stems from increased gross inflows of Foreign Direct Investment numbers which have “more than doubled” to $18.3 billion in April-May 2021 compared to $8.5 billion in the corresponding period of the previous year. It is a fact that the foreign exchange reserves reached $620.1 billion by end July 2021, equivalent to more than 18 months of 2020-21 imports. This, according to experts will go a long way in acting as a critical cushion against possible “hot money” outflows from the Indian markets.

Growth Projections

State Bank of India (SBI) in its monthly Ecowrap research report had expected India’s GDP to grow at 18.5 per cent in the June quarter due to low base effect. But when the official GDP numbers for Q1 (April-May-June) of FY22 were finally announced on August 31, it surprised everyone with its record growth pace. GDP in Q1 of FY22 is estimated at Rs 32.38 lakh crore, as against Rs 26.95 lakh crore in Q1 of FY21, showing a growth of 20.1 per cent as compared to a contraction of 24.4 per cent in Q1 FY21, as per an official statement. The Gross Value Added (GVA) also clocked 18.8 per cent growth in the first quarter (estimated at Rs 30.48 lakh crore, as against Rs 25.66 lakh crore in Q1 of FY21).

The supply side depicted that Q1FY22 growth was led by manufacturing and construction. Services remained a laggard as contact-sensitive sectors bore the brunt of localised lockdowns. Financial and real estate improved sequentially. The expenditure side reflected healthy private consumption and solid fixed capital formation at 55.3 per cent.

The fiscal data, also released on 31 August 2021, showed a sharp 83 per cent growth in the gross tax revenues during April-July of FY22 over the corresponding period of FY21. “This gives an indication of a significant policy room for the government to uplift its demand and its contribution to output in the remaining part of the current fiscal year so as to ensure that the overall growth performance for the full year of 2021-22 does not fall below the growth expectation of 9.5 per cent, both by the RBI and the IMF,” Srivastava of EY adds.

In the July 2021 update onthe World Economic Outlook, the IMF did bring down India’s FY22 GDP growth forecast estimates to 9.5 per cent from its earlier projection of 12.5 per cent in April 2021 due to the impact of Covid’s second wave. The RBI, in its August 2021 monetary policy review, had also estimated India’s growth at 9.5 per cent for FY22, the same as its original forecast in June 2021. The cumulative effect of two years of Covid has led to an erosion of India’s real GDP such that at the end of 2021, real GDP would exceed the level in 2019 by only 1.5 per cent.

“India may still emerge in the negative territory if the economy is not able to show a benchmark real GDP growth of at least 7.8 per cent,” says Srivastava of EY India. “Such an eventuality may arise if Covid’s third or subsequent waves turn out to be unduly strong,” he adds.

Meanwhile, more Indians are now under the insurance net that ever before totalling 68.98 crore, of which 10.34 crore are enrolled in the Pradhan Mantri Jeevan Jyoti Bima Yojana and 23.40 crore in the Pradhan Mantri Suraksha Bima Yojana, with claim servicing ratio of 93.7 per cent and 77.3 per cent respectively. Let’s keep our fingers crossed and hope for a better and faster economic recovery in the current quarter and the next.