Home / News / India /  NCAER projects economy to register marginal growth in Q3

The National Council of Applied Economic Research (NCAER) has revised upward its gross domestic product (GDP) projection for FY21 to 7.3% contraction from the 12.6% dip estimated in September with the expectation that the economy will register marginal growth in the December quarter.

“Following the steep decline in GDP in 2020 Q1, the recovery in Q2 was surprisingly sharp. Accordingly, we have revised our growth forecasts for Q3, Q4, and the full year 2020-21 to 0.1%, 2% and (–) 7.3% respectively," the Delhi based economic think tank said in its mid-year review of the Indian economy.

Economic affairs secretary Tarun Bajaj on Friday said he expects the Indian economy to be back on track soon with signs of sustained improvement. In FY22, the size of the economy may bounce back to cross the 2019-20 figures by a slight margin, Bajaj said. The Reserve Bank of India expects the economy to post growth of 0.1% in the December quarter and 0.7% in the March quarter to end FY21 with a 7.5% contraction. S&P Global Ratings last week revised upward its GDP growth forecast for India to negative 7.7% for FY21 from its earlier projection of negative 9%, holding that it is surprised by the vigour of India’s economic recovery.

However, NCAER cautioned that despite the ongoing recovery, hysteresis, the long-term effect of the sharp contraction in FY21 may be long lasting. “The economy will have to grow at more than the previous trend rate for it to catch up with its pre-pandemic growth path. Conventional macroeconomic policies alone will not do. These will have to be supported by deep and wide-ranging reforms, especially in the financial sector, power and foreign trade. Additional reforms in health, education, labour, and land are also urgent, but these will require close coordination between the Centre and states in a spirit of cooperative federalism as these are in the main state subjects in the 7th Schedule of the Constitution," it said.

The government’s fiscal stimulus could have been more effective in terms of timing, allowing extra headroom for borrowing and spending by states earlier on, and a greater emphasis on income support for poor consumers in the composition of expenditure, NCAER said.

“The FY22 budget needs to pump prime a quick recovery and at the same time initiate fiscal consolidation. The expected high growth next year provides the space for a strategy that can achieve this delicate balance. However, the massive increase in government borrowing required for financing the huge combined fiscal deficit is a major challenge for monetary policy," it said.

Industrial recovery in the September quarter led to the economy bouncing back. However, NCAER said that high frequency indicators suggest that the pace of industrial recovery has become shallower in the December quarter, calling into question the sustainability of the recovery. “Demand conditions remain weak. This is evidenced by the decline in exports and imports which reflect, respectively, the state of external demand and domestic demand. Also, the November RBI Consumer Confidence Survey showed that consumer confidence was low compared to the same period a year ago. However, consumer sentiment was higher in November than in July and September 2020. Consumer sentiment remained weak on the general economic situation, the employment, price levels, and household incomes. The overall outlook for industrial growth remained quite uncertain," it said.

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