NEW DELHI: Within minutes of release of fourth quarter GDP numbers, chief economic adviser Krishnamurthy Subramanian made a detailed presentation on the economic situation, reminiscent of the pre-budget Economic Survey.
His message was simple: The impact of the second wave, which has caused significant devastation in terms of lives and livelihood, will not be large. He pointed to several indicators and the global experience to argue his case. RBI too seems to be on the same page, which also expects a muted impact of the second wave, that may be confined to the April-June quarter with a possibility of a spill over to July.
But economists in the private sector as well as international agencies are less upbeat, with state-run SBI slashing its growth projection from 11% before the second wave hit India to 7.9% now — a three percentage point cut (or 28% lower than original projection). Similarly, Paris-based OECD has lowered its estimate from 12.6% to 9.9%.
“India is projected to be the fastest-growing G20 economy in 2021 — but also the one, which is the furthest away from its pre-crisis GDP trend. Pent-up demand for consumer durables and exports of manufacturing goods and services will act favourably, but other components will be far less supportive,” the think tank said in its overall assessment.
In the Economic Survey, the finance ministry’s economic division has pegged the GDP growth at 11% but unlike several private sector economists, who have cut down their estimates to single-digit level, the government is yet to come up with a fresh estimate and will only do so later when it gets a full picture.
Although the government often accuses private agencies and think tanks of a “herd mentality”, being guided by the initial few projections, on their part, economists from these agencies suggest that the finance ministry has often under-estimated the impact. For instance, last year, in a presentation before the Finance Commission, Krishnamurthy and his team had estimated the impact of the national lockdown to be quite low, although the government’s latest estimate showed that the Indian economy shrank by 7.3% in 2020-21 — the first decline in over four decades.
Evidence on the ground points to some more likely pain in the months ahead until vaccination gathers speed and the pandemic is brought under control, which may help start the process of unlocking gradually.
“The pandemic will leave new economic scars and deepen pre-pandemic constraints. Our growth forecasts indicate a shortfall in GDP compared with our pre-pandemic expectations of more than 10% in fiscal 2021-22,” ratings agency Moody’s Investor Service said in a report, referring to the medium and long-term growth prospects. It now estimates the economy to grow 9.3%.
Some economists also said the rural economy may not support overall growth this year as was evident in last year, something that the government does not seem to have factored in fully.