Up to the budget to validate IMF’s positive projections
The IMF expects GDP to grow at 11.5% and 6.8% in FY22 and FY23 respectively, making India regain the world’s fastest-growing economy tag. Interestingly, India is the only nation with projected double-digit growth next fiscal, even higher than rival China. Just a few months ago, the Indian growth story was written off when GDP growth contracted to a terrifying 24% in Q1.
But now, the faster-than-expected recovery only reaffirms the Asian giant’s power of resilience: Fall seven times, to stand up eight. Even the central bank is upbeat and with evidence on its side, it confirmed recovery was getting stronger. Channelling Shakespeare, it further noted that ‘the winter of our discontent will be made glorious summer’. But a lot depends on the forthcoming Budget, as fiscal expansion and the vaccination drive will determine the pace of recovery.
Per estimates, FY22 nominal GDP growth is pegged at about 15%, based on which tax collections, fiscal and revenue deficit targets will be set. Till now, it’s the government’s final consumption expenditure that provided valuable counter-cyclical support to GDP since Q4, FY17. But even assuming FY22 expenditure grows in double digits, it’s pertinent to note that about 70% goes into interest payments, salaries, pensions, subsidies and state transfers.
In other words, government spending on pandemic support measures will likely remain much the same at 1.8-2% like in FY21. For one, measures such as the employment guarantee programme, higher fertiliser subsidies and affordable housing will probably amount to 0.9% of GDP, while the vaccination programme could cost another 0.2-0.3%. So growth-oriented capex spending could remain similar to FY21 at about 1.9% of GDP. This needs urgent attention.
The pandemic-induced recession is unique, having affected both wealth and well-being. So its impact is deeper, which means it takes that much longer to resolve. Needless to say, the thrust should be on creation of jobs and aggregate demand, which in turn will depend on increased outlays on healthcare, besides efforts to boost domestic manufacturing and infrastructure, including construction and housing projects with the government at the wheel.