Expert Perceptions on Economic Recovery


Expert Perceptions on Economic Recovery

There are presently many views on India’s economic recovery. According to some experts, the economy could begin to recover only by August, forecasting a ‘U-shaped’ turnaround from the slump caused by the second wave.  The government however, expects revival will take place earlier.  Chief Economic Advisor KV Subramanian expects a turnaround by June end.

According to NSO’s (National Statistical Office) provisional estimates for 2020-21, the annual contraction in real GDP turned out to be 7.3 per cent, an improvement over the earlier estimate of 8 per cent. A real GDP growth of 7.8 per cent would be required in 2021-22 to reach back to 2019-20 real GDP levels.


Revised GDP estimates

The erstwhile GDP growth projections for 2021-22 are being re-examined to take into account the adverse impact of the second wave of the pandemic. The RBI has revised down its 2021-22 real GDP growth forecast to 9.5 per cent. Some other recent estimates (ICRA) indicate the feasibility of a 9 per cent growth. At the lower end, a growth of 8.5 per cent is being projected by Societe Generale, and 7.6 per cent by Moody’s.

According to Yuvika Singhal, economist at QuantEco Research, “We will see a more drawn out recovery, so the V-shaped recovery we saw last year is going to be more U-shaped and you will see that across indicators.”  Demand is unlikely to respond to the easing of curbs as sharply as last year as the most severe impact has been on the urban middle class and upper income sections.

Also, rural India has been hit harder this time.  Besides, last year, the combination of pent-up demand and the festive season drove a sharp recovery. But this year, the severe second wave that has impacted millions and the possibility of a third wave of the pandemic is likely to keep a lid on consumer sentiment.

Crisil estimates: According to Crisil, it will take more than a quarter for the economy to revive to pre-pandemic levels.  The higher prevalence of cases has resulted in household savings being consumed by medical expenses, which will further dent consumption. India’s per capita GDP fell 8.2% on-year to ₹99,694 last fiscal. “Consumer demand will be driven by sentiment, which we expect will be subdued for a prolonged period,” said ICRA chief economist Aditi Nayar.

Barclays estimates: Considering March-April levels as normal, with some mobility restrictions likely to remain till June end, the turnaround might come only by July or even August, said Rahul Bajoria, chief India economist at Barclays.

PMI data: The latest high-frequency data indicates the economy may have bottomed out in May, but the climb back may take a while. The Purchasing Managers’ Index (PMI) for services dipped to 46.1 in May from 54 in the previous month while that for manufacturing moderated to 50.8 from 55.5 in April.

A reading below 50 on this survey-based index shows contraction. Although manufacturing PMI dropped in May, it stayed within expansionary territory through what experts consider the trough of the second wave.


9% real GDP still feasible

C Rangarajan (former chairman, Economic Advisory Council to the Prime Minister and former governor, RBI) and D K Srivastava (Chief Policy Advisor, EY India and former Director, Madras School of Economics) “consider that with suitable policy interventions, a 9 per cent real GDP growth may still be feasible if the lockdowns wind-up by end July……

“Given the economic challenges in the wake of the second wave, three expenditure heads need to be prioritised. First, an increase in the provision for income support measures for the vulnerable rural and urban population. This would require an amount of Rs 1 lakh crore which may be partly provided through expenditure restructuring. Second, in light of the recent decision, the budgeted expenditure on vaccination of Rs 0.35 lakh crore ought to be augmented, at the very least, doubled. Third, additional capital expenditure for select sectors, particularly healthcare, should also be provided for. This may be another Rs 1 lakh crore. Together these additional expenditures would amount to Rs 1.7 lakh crore, about 0.8 per cent of the estimated nominal GDP. Thus, we need to plan for a fiscal deficit of about 7.9 per cent of GDP consisting of (a) a budgeted fiscal deficit of 6.7 per cent (b) 0.4 per cent to make up for the shortfall in total non-debt receipts and (c) 0.8 per cent for the additional stimulus measures.”

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