Multiple green shoots of recovery such as in agriculture, automobiles are visible in the economy evident from sharp rise employment numbers, Chairman of the 15th Finance Commission (FFC) NK Singh said on Friday, while maintaining that the growth outlook for the financial year remains uncertain as the pandemic has not played itself out yet.
“There is evidence of some sharp recovery. Employment numbers have gone up very sharply. Huge green shoots on agriculture, fertilizer sales are visible due to normal monsoon. Farm sector revival will be an important ingredient for recovery process of the economy this year. Foreign Direct Investment (FDI) inflows are robust, there is sharp recovery in automobiles sector. Slack in the system is building up. Multiple green shoots covering agriculture, manufacturing and services are now visible,” he added.
Prime Minister Narendra Modi last week also said there are green shoots visible in the Indian economy ever since the lockdown has been lifted on 1 June.
India’s largest carmaker, Maruti Suzuki India Limited (MSIL), reported sales of 18,539 units in May, up from zero sales in the preceding month, having resumed production in a phased manner at two of its units last month after some easing of the lockdown curbs. Unemployment rate has fallen sharply in recent weeks, coming close to the pre-lockdown weeks, according to Centre for Monitoring Indian Economy data.
Singh however refused to make a growth projection for the current financial year citing prevailing uncertainties. However, he said the 30 year average growth rate of India stands at around 6.5-7% and nothing so far shows that India’s medium term growth potential has been damaged.
The International Monetary Fund on Wednesday projected the Indian economy to contract 4.5% in FY21 against its earlier growth estimate of 1.9%. Rating agency Standard & Poor’s on Friday said the permanent loss in output due to the covid-19 pandemic to be the highest in India in the Asia Pacific region at 10.9%. “India’s economy is in deep trouble. Difficulties in containing the virus, an anemic policy response, and underlying vulnerabilities, especially across the financial sector, are leading us to expect growth to fall by 5% this fiscal year before rebounding in 2021,” it said.
“The pandemic remains the key driver of the country’s prospects. Even though lockdowns have eased in less populated areas, urban growth engines are still held back by rising infections, severe mitigation policies, and consumer risk aversion. A normal monsoon, low oil prices, and supportive external financial conditions will only partly offset these effects,” it added.
The FFC which has a deadline of October to submit its recommendations for the five year period starting FY22 discussed the unique challenges it is facing due to the coronavirus pandemic with its economic advisory council. Singh said while the preceding year is usually taken as the base year for making growth and fiscal projections for the next five years by Finance Commissions, the large scale disruption expected in FY21 may make it ineligible to be considered as a base year. “One suggestion is to take growth assumptions for the first six months of FY22 and make that the base year. Another one was to take an average of the GDP growth of last three years as the base year. Since we know very little about next year, we have to make assumptions on nominal GDP,” Singh added.
On the probable debt and fiscal consolidation roadmap, Singh said it is not the time to talk about it since there is consensus globally that government expenditures need to be protected. “Going beyond next year, obviously we have to address this issue. We don’t know what more fiscal challenges government will encounter. The finance minister has kept her options. It is difficult to say what fiscal numbers will turn out to be this year. Governments are obliged to respond to the dynamics of the situation. After sharp economic rebound, these issued should occupy the mind space of state and central governments,” he added.