GDP for next fiscal projected at 6-6.5%

Sandeep Dikshit

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Tribune News Service

New Delhi, January 31

The Economic Survey has predicted that the GDP should strongly rebound from a low statistical base of 5 per cent in 2019-20 to grow in the band of 6 to 6.5 per cent in 2020-21.

“It appears the upside risks should prevail, particularly when the government, with a strong mandate, has the capacity to deliver expeditiously on reforms,” said the survey for 2019-20 presented in Parliament by Union Finance Minister Nirmala Sitharaman here today.

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Based on the Central Statistics Office’s (CSO) first Advance Estimates of India’s GDP growth for 2019-20 at 5 per cent, an uptick in GDP growth is expected in H2 of 2019-20. “The government must use its strong mandate to deliver expeditiously on reforms, which will enable the economy to strongly rebound in 2020-21,” noted the survey.

The deceleration in GDP growth could be understood within the framework of a slowing cycle of growth, it said, with the financial sector acting as a drag on the real sector.

The survey apportioned part of the blame for the slowing down of the Indian economy to a difficult year for the global economy with world output growing at its slowest of 2.9 per cent since the global financial crisis of 2009. The GDP growth had moderated to 4.8 per cent in the first half of 2019-20, lower than 6.2 per cent in the second half of 2018-19.

The other reasons for the slowdown were a sharp decline in real fixed investment due to sluggish growth of real consumption that weighed down GDP. The survey claims that real consumption growth has recovered in the second half of 2019-20, cushioned by a significant growth in government final consumption.

On the supply side, it says the deceleration in gross value added growth was all-round except in ‘defence and other services’ and ‘agriculture and allied activities’. The survey found a silver lining in decline in consumption that led to lower imports. India’s external sector gained further stability in the first half of 2019-20, with a narrowing of current account deficit (CAD) from 2.1 per cent in 2018-19 to 1.5 per cent.

Imports have contracted more sharply than exports, with easing of crude prices, which has mainly driven the narrowing of CAD. The other reasons were continued inflow of FDI, rebounding of portfolio flows and accretion of foreign exchange reserves.

The survey felt there was “building of demand pressure” behind the increase in CPI-core and WPI inflation in December 2019-20. The survey felt the government was on the right track by attempting to boost investment, consumption and exports.

Bases for the uptick

• Real consumption growth recovered in second half of 2019-20
• External sector gained stability in the first half of 2019-20, with narrowing of current account deficit from 2.1% in 2018-19 to 1.5%
• There was continued inflow of foreign direct investment, rebounding of portfolio flows and accretion of foreign exchange reserves

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