Economic Survey pegs GDP growth at 6.5 pc in FY 20-21

As per the survey, tabled in Parliament by Finance Minister Nirmala Sitharaman a day before the Union budget, on a net assessment for the projection of GDP growth in 2020-21, it appears that upside risks should prevail, particularly when the government, with a strong mandate, has the capacity to deliver expeditiously on reforms.

GDP growth of India should strongly rebound in 2020-21 and more so on a low statistical base of five per cent in 2019-20, said the “Outlook” in the survey prepared by the team under Chief Economic Adviser Krishnamurthy Subramanian. The document said the IMF in its 2020 update of the World Economic Outlook projected India’s real GDP to grow at 5.8 per cent in 2020-21. World Bank in its January, 2020 issue of Global Economic Prospects also sees India’s real GDP growing at 5.8 per cent in the next fiscal. Based on first Advanced estimates of India’s real GDP growth in 2019-20, an uptick in GDP growth the second half expected as compared to first half of the same year.

With a view to making an assessment of the likely growth in GDP, the survey discussed both the downside and upside ticks. On the downside risks, it said continued global trade tensions could delay recovery in growth of global output, which may constrain export performance. Weaker export growth may reduce inducement to increase fixed investment rate in economy.

Escalation in US-Iran geo-political tensions may increase crude oil price and depreciate the Rupee. Net Foreign Portfolio Investment inflows may weaken, as a result, adding further pressure on the Rupee. “If a fuller pass-through of the costlier crude oil is allowed, it may fuel inflationary pressure in the economy, cause the growth of private consumption to decline and weaken the inducement to invest. Even if a partial pass-through happens, fiscal deficit may swell, may increase the yield on G-sc and thereby, increase the cost of capital that may again weaken the inducement to invest,” it said.

The survey also said growth in advanced countries has weakened with very low inflation. The conventional monetary policy has almost run its full course. Subsequently, quantitative easing may fuel inflation and reduce real interest rate. At some point in future, it said, if short-term interest rates are raised by Central banks to contain inflation, it results in capital flight from emerging and developing market economies (EMEs), including India.

Leakage from domestic circular flow of income may increase which may adversely impact private consumption and investment. If instead, fiscal expansion is the preferred policy option, increase in short term rates may happen earlier and weaken growth impulse in EMEs. Investment and FDI in public sector may increase, as is expected after announcement of the National Infrastructure Pipeline (NIP) of projects worth Rs 102 lakh crore. On upside risks, it said there are tentative signs that manufacturing activity and global trade are bottoming out. This may positively impact exports. On realty, which is subdued at the moment, the survey said existing unsold housing inventory can be cleared and balance sheets of both bank and non-bank lenders cleaned if the real estate developers are willing to take a ‘hair cut’ by allowing prices to drop.