Growth rate in 2021 will surely go upwards but it should be interpreted with caution

Source: The Indian Express

Category: Economy

A thread that goes through the Economic Survey, the Union financial plan, and the RBI credit strategy, one which is held by India Inc., is that the economy is on the path of recovery. This is very normal as the two fourth of negative growth in GDP were achieved by the closure of the economy, which was intense in the first quarter and obliged in the second. In any case, post October, green shoots has been seen by policymakers, which joined with the solid strategy uphold, legitimizes the inclination that the worst is gone.

The third quarter GDP numbers would be out by the end of the month and can be imperceptibly negative or even positive. The securing factor here would be corporate productivity, which has been positive for the quarter. The final quarter will show positive development rate, and as an outcome, the constriction for the entire year will be between 7.5-8 percent. It will be just an upward development from here on.

The constriction establishes the tone for development in 2021-22 which is presently going to be basic as it is the establishment for the fructification of the budget income targets. It is accepted that there will be twofold development in genuine GDP this year. This is being deciphered by investigators just like a V-molded recuperation and those cheerful days are back.

Be that as it may, think about this: GDP in 2019-20 was Rs 146 lakh crore, which has come down to Rs 134 lakh crore in 2020-21. Henceforth, a 10 percent development will take the Indian economy to Rs 147 lakh crore — when contrasted with Rs 145 lakh crore, this is modest. In this way, assumptions ought to be tempered when we discuss development one year from now. Does this imply that it will be an unremarkable growth? Likely not, as there will be recovery in economic activities which will presumably prove to be fruitful in 2022-23 — FY 2021-22 will be a time of consolidation.

Policy architecture by the government:

  • The government has got a strategy system directly from the hour of the Atmanirbhar declarations, coming full circle in the financial plan.
  • There is an attention on foundation just as giving motivating forces to venture through the Production Linked Incentive (PLI). Real estate sector, power sector and also the construction section saw a few policy changes a year ago.
  • There is a capex push by the government and the way the government is discussing the fiscal deficit ratio of 4.5 percent by 2025-26 implies that there will be number of activities taken by the government.
  • The RBI has vowed to proceed with accommodative policies, which imparts a sign of overseeing liquidity. We can anticipate more open market activities and long haul repo tasks during the year to guarantee that loan costs stay stable. Notwithstanding, there will be worry around state government borrowings as well, which will put pressure on funds availability, taking into account that private area request has been dreary so far this year and will pick up certainly. Henceforth, there will be more RBI intercession in the market to guarantee that availability of funds.

Inflation is a worry as worldwide commodity costs have just fired up. In India, as well, we have seen that the cost of petroleum and diesel is rising. What's more, with the government reluctant to yield on taxes, higher fuel expansions can possibly resentful on inflation projections. Monsoon has been good over the recent four years; there is a chance of an unfavorable season this time which can influence food costs. It has been seen that there are stuns for vegetables, particularly onions, consistently, which can possibly inflate food prices. This will be something to keep an eye for.

What else will be pivotal for going ahead? Development must be driven by two different engines —

  • Consumption development- has been influenced by the shortfall of job creation, which has come in and hauled income growth. Henceforth, for development to occur, consumption development must be genuine and quick. This is impossible too early as consumption is reliant on job creation.
  • Investment- which has slacked with net fixed capital development tumbling to a low of 24.2 percent in 2019-20 from 34.3 percent in 2011-12. This must be reversed. This will be a test since post the non-performing loan issue, the interest for such tasks has been down and banks have been careful about loaning for infrastructure. There is surplus limit in industry with the limit being 63.3 percent in the second quarter of 2020-21. Private sectors will rise slowly and the onus is on governments to deal with their objectives: Both the Center and states.

Consequently, the year 2021-22 will be one where development will drift upwards, yet it must be deciphered with caution, keeping an eye on consumption meter, while pushing the investment pedal with one and other foot solidly on the brake, or inflation.