HYDERABAD: When will India reclaim its famed 8 per cent growth rate? By as early as FY22, if Budget 2020 estimates are to be believed.
Tucked in the Medium-Term Fiscal Statement was a headline grabber, with officials projecting nominal GDP growth of 12.6 and 12.8 per cent in FY22 and FY23 respectively.
It suggests that after adjusting for inflation (five-year average of 4.5 per cent), India's real GDP growth will likely return to its rightful 8 per cent in the next two years. If this happens, the less glamorous 5-6 per cent growth rate for FY20 and FY21 will be left in the dust.
But then, these are raw estimates, and chances are, estimates could be tempered based on global and domestic economic sentiment.
When contacted, Sowmya Kanti Ghosh, Group Chief Economic Adviser, SBI, said the estimates were indeed aggressive. In FY20 and FY21, nominal growth is pegged at 7.5 and 10 per cent respectively and real GDP at 5 and 6-6.5 per cent. Nominal GDP is measured using current prices of goods and services, while real GDP excludes inflation.
In absolute numbers, FY20 GDP is projected at Rs 204 lakh crore or roughly $2.9 trillion. India will be the fifth largest economy, but will need more than $1 trillion to move up one spot currently occupied by Germany at $3.9 trillion.
If the economy grows at the projected nominal 10 per cent in FY21, in absolute terms, it'll touch Rs 224 lakh crore. Likewise, in FY22 and FY23, 12.6 and 12.8 per cent nominal growth should take output to Rs 253 lakh crore and Rs 285 lakh crore respectively.
"For FY21, the projected nominal GDP growth at 10 per cent is relatively realistic as growth picks up from a trough in FY20, as well as due to higher deflators," said Radhika Rao of DBS. If you dig deeper, she added, tax and indirect revenue assumptions as a percentage of GDP aren't largely different for FY21.
In the previous five years, India grew an average 7.5 per cent, while inflation remained around 4.5 per cent.
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So far, we've seen growth decelerating for six consecutive quarters. While the latest Economic Survey expects resurgence in growth in the second half of FY20, the Budget documents indicate that growth will decidedly pick up starting April, or the first quarter of next fiscal. But what gives?
The Survey cites as many as 10 reasons for its optimism in growth uptick.
First, it cited strengthening consumption index, followed by robust net FDI and FPI inflows during April-November. While the transmission of RBI's policy rate cuts will yield in the coming quarters, industrial activity is already showing signs of growth. Along with IIP, growth of eight core industries and PMI manufacturing are steadily displaying improvement. Plus, the contraction in exports was smaller in Q3 than Q2 and the Survey expects exports to GDP growth to increase by 1.1 per cent this fiscal.