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India’s economy is expected to grow at 9-11% this fiscal, followed by a 6-7% growth next year, with chances of a third wave of the pandemic slowing down the economy being slim, Bibek Debroy, chairman of Economic Advisory Council to Prime Minister Narendra Modi said in an interview.

After a series of mini-budgets last fiscal and an economic package in June this year following up on the Union budget in February, the Modi administration is now betting on the sustainability of the economic recovery currently underway to restore livelihoods and incomes lost to the pandemic.

Debroy’s economic growth estimate for this fiscal, which is in line with RBI’s forecast of 9.5% growth, comes at a time the Union government is entering the hectic budget preparation phase for FY23. In the last budget, finance minister Nirmala Sitharaman chose to scale up capital spending, fix healthcare infrastructure, support states’ ability to invest in infrastructure and recalibrate the customs duty structure to encourage manufacturing.

Debroy said the economic recovery is broad-based, and inflation is under control. “It is fairly obvious that real GDP growth in FY22 is going to be somewhere around 10%. Perhaps a percentage point more or less, that is, a band of 9-11%. I can cite all kinds of indicators, whether they are mobility indicators or GST, to substantiate this," Debroy said.

But a statistical effect is also in play. “Part of the reason of this—I want to underline that this is only part of the reason, not the entire reason—is the low base. If we accept that in the year before there was a 7% decline, then merely to compensate for it, I will get a 7% growth. I repeat that not all of the growth is because of the base effect; some of it is. That is why I think people who are still arguing that 10% is not possible are statistically not realistic," he said.

The economic survey 2020-21 tabled in Parliament in February had projected India’s real GDP growth rate at 11% and nominal GDP growth rate at 15.4% this fiscal. The nominal GDP growth forecast made in the budget for this fiscal is 14.4%.

Debroy expects the base effect to be the least in the fourth quarter of FY22 and real GDP growth rate anywhere between 6-7% in FY23.

A host of economic indicators, including railway freight traffic and GST collections, have given comfort to policymakers about the recovery even as subsiding covid-19 infections, festive demand and robust production of kharif foodgrain in 2021-22 make the second half of the year look promising. On Wednesday, the finance ministry said in its monthly review of the economy that growth drivers were setting the stage for the investment cycle to kick-start and make the economy the fastest growing in the world.

However, Debroy is keenly watching how micro, small and medium enterprises and the urban labour market—some of the areas hit by the pandemic—are faring. “Since the growth is going to happen, which I am confident of, I am reasonably certain that the labour market will also recover with a time lag," he said.

Debroy said the commodity price surge may be contributing to inflation, but he would not worry too much about it.

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