Growth compulsions, fiscal arithmetic -C Rangarajan and DK Srivastava
The economic situation warrants enhanced government expenditure; the policy challenge is to minimise the growth fall
India’s growth in the first quarter of 2020-21 at (-) 23.9% showed one of the highest contractions globally. Global growth prospects for 2020 have been projected by a number of multilateral institutions and rating agencies including that for India. The 2020-21 real GDP growth for India is forecast in the range of (-) 5.8% (the Reserve Bank of India’s Survey of Professional Forecasters) to (-) 14.8% (Goldman Sachs). The Organisation for Economic Co-operation and Development (OECD) in its September 2020 Interim Economic Outlook has projected a contraction of (-) 10.2% in FY21 for India.
The annual projections also indicate a strong likelihood of even the nominal GDP growth showing a contraction for 2020-21. The latest data released by the Ministry of Statistics indicate a Consumer Price Index (CPI) inflation rate of 6.7% for August 2020. The average CPI inflation during the first five months of 2020-21 is estimated at 6.6%. Given the injection of periodic liquidity into the system and the inflation trends, the year as a whole may show a CPI inflation of close to 7%. Since deflator-based inflation tends to be lower than the CPI inflation, it may be about 5% or less. In fact, in the first quarter of 2020-21, the GDP-based deflator was only 1.8%. If we take the OECD’s real GDP growth projection at (-) 10.2% and a deflator-based inflation of about 5%, the implied contraction in nominal GDP is about (-) 5.0% for 2020-21.
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The Hindu, 28 September, 2020, https://www.thehindu.com/opinion/lead/growth-compulsions-fiscal-arithmetic/article32709726.ece?homepage=true