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Monday, September 20, 2021

Growth likely between 18-29%: Exports, govt spending key supports on low base

The decline was even sharper on a quarterly basis where PFCE growth declined to 2 per cent in 4QFY20 from 11.2 per cent in 3QFY17. The lockdown caused by Covid in FY21 only aggravated it as jobs, livelihoods and household budget were severely dented,” it said.

By: ENS Economic Bureau | New Delhi |
Updated: August 31, 2021 3:02:06 am
india informal sector gdpStill, the economic damage appears to be less than previously expected. (Illustration by C R Sasikumar)

India’s Gross Domestic Product (GDP) growth is seen growing to a record high for the April-June quarter as the low base effect of last year’s sharp contraction of 24.4 per cent after the outbreak of the Covid pandemic comes into play. Most economists have projected GDP growth for April-June ranging from 18-29.4 per cent, the data for which will be released officially by the Ministry of Statistics and Programme Implementation on Tuesday.

The country’s GDP growth had been slowing for eight quarters after the January-March quarter of 2017-18 financial year, which was exacerbated in the April-June quarter last year, amid the impact of the nationwide lockdown imposed against the outbreak of the Covid-19 pandemic. Even though the first quarter GDP data for this fiscal will show a record high number, economists said the number is deceptively high as private consumption expenditure remains low as households savings have dwindled and disposable incomes have shrunk with high expenditure on health and job losses in the aftermath of the pandemic.

Healthy Central and state government capital spending, strong merchandise exports and demand from the farm sector along with the low base effect are expected to support the GDP growth. Some economists stated that the expected damage from the second wave of the pandemic has been less and hence, a recovery is now underway. Barclays India, which has projected a GDP growth rate of 21.2 per cent, said, “The second Covid wave acted as a stumbling block to the robust recovery that was underway. Still, the economic damage appears to be less than previously expected. With the second outbreak brought under control, a rapid recovery appears underway.” State Bank of India has projected a growth rate of 18.5 per cent for April-June, while Nomura has projected a growth rate of 29.4 per cent.

The GDP, however, is expected to stay below the pre-Covid level. “ … the double-digit expansion expected in YoY terms in Q1 FY2022 is deceptively high, as it benefits inordinately from last year’s contracted base. We forecast the GVA and the GDP to have shrunk by around 9 per cent each in Q1 FY2022, relative to the pre-Covid level of Q1 FY2020, highlighting the tangible distress being experienced by economic agents in the less formal and contact-intensive sectors,” Icra said. It expects GDP in April-June to have grown by 20 per cent.

India Ratings said that the Indian economy had begun to witness a consumption slowdown even before the COVID-19 pandemic hit it. “On an annualised basis, PFCE growth had declined to 5.5 per cent in FY20 from 8.1 per cent in FY17. The decline was even sharper on a quarterly basis where PFCE growth declined to 2 per cent in 4QFY20 from 11.2 per cent in 3QFY17. The lockdown caused by Covid in FY21 only aggravated it as jobs, livelihoods and household budget were severely dented,” it said.

The impact of the pandemic on GDP growth this year has been more severe in view of the spread of the pandemic to rural areas. “Unlike Covid 1.0, which was largely an urban phenomenon, Covid 2.0 spread to rural areas as well. Even if the agricultural output/income remains intact in view of the progress of monsoon so far, rural households are unlikely to loosen their purse strings in view of the Covid induced rise and/or a likely rise in the health expenditure as also the uncertainty/insecurity associated with the likely future waves of Covid. In fact, the largest chunk of the rural population consists of daily wage earners and not farmers.

Rural wage growth both for agricultural and non-agricultural activities has declined lately. Wage growth even in urban areas has been muted. In fact, urban households, besides the rise in health expenditure, are facing the double whammy of income loss/ stagnation coupled with high consumer inflation. All this has severely dented their disposable income,” it said.

 

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