Economy

Economic rebound could follow after India’s steepest GDP fall

Read more at www.fortuneindia.com

But the NSO’s estimates aren’t the only gloomy one out there. The latest estimates released by the World Bank paint an even bleaker picture. As per World Bank’s Global Economic Prospects report, India’s economy will contract by a whopping 9.6% in FY21, and is expected to recover upto 5.4% in 2022 as the rebound from a low base.

D.K. Srivastava, Chief Policy Advisor, EY India, speaking to Fortune India, argues that the NSO’s estimate, which is lower by a margin of 1.9% points relative to the World Bank estimate, appears to be more realistic. “However, these estimates are contingent upon a significant turnaround in government expenditures supporting overall demand. This implies that in the last quarter of 2020-21, government spending, particularly by the centre, will have to be sharply uplifted. For this, it may be necessary to increase central government’s borrowing to 7.0% of GDP or above in 2020-21,” Srivastava says.

The advance estimates of GDP are calculated by evaluating indicators like the Index of Industrial Production (IIP) of the first seven months of the financial year, first advance estimates of crop production, cargo handled at major sea ports, commercial vehicles for the first eight months of the financial year, passenger and freight earnings of railways, passengers and cargo handled by civil aviation, financial performance of private listed companies till September, deposits, and credits and accounts of central and state governments.

“Similar to the previous years, the advance estimates (AE) for FY2021 have been based on the available data for six to eight months across various sectors. However, the modifications made in the extrapolation process seem to have captured the impending upturn expected in H2 FY2021, unlike earlier years, when the AE seemed to miss inflections that were underway in the second half, and ended up seeming to either over- or under-estimate the full year growth,” says Aditi Nayar, principal economist, ICRA, a Gurugram-based credit ratings agency.

Nayar points out that the performance of a majority of the available lead indicators, such as electricity demand, non-oil merchandise exports, rail freight, GST e-way bills, and vehicle registrations, has improved in Q3 FY2021 relative to Q2 FY2021, suggesting that the contraction in real GDP and GVA will narrow appreciably in Q3 FY2021 from 7.5% and 7.0%, respectively, in Q2 FY2021. “However, a portion of the improvement in profitability generated by the rising volumes, would be absorbed by rising raw material and employee costs in certain sectors,” she adds.

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