FY21 GDP: Q2 data signal ‘upside potential’ to forecasts, says CEA KV Subramanian

Maintaining that he is “cautiously optimistic”, the CEA highlighted that this caution is warranted in light of the fact that the economic contraction is primarily driven by the pandemic.

Also, given the uncertainty, it is difficult to predict if the economy will enter the positive territory in the third or fourth quarters of this fiscal.
Also, given the uncertainty, it is difficult to predict if the economy will enter the positive territory in the third or fourth quarters of this fiscal.

Encouraged by a lower-than-expected slide of 7.5% year-on-year in real GDP in the September quarter, chief economic adviser KV Subramanian on Friday spoke of an “upside potential” to the GDP estimates firmed up by the central bank and other agencies if the country doesn’t go through a second wave of Covid-19.

The RBI had in October forecast a 9.5% contraction for FY21, while some other global agencies recently projected an up to 11% slide for the fiscal. Some of the high-frequency indicators, including manufacturing PMI, diesel sales and power demand, have since shown a rebound.

Terming the slower-than-anticipated fall of 7.3% in gross fixed capital formation in Q2 from 47.1% in the previous three months an “encouraging sign”, Subramanian hinted at an improvement in private investments, since government spending in the September quarter actually slipped by as much as 22.2%.

However, despite the improvement, the Indian economy entered recession in the second quarter. It also was the worst performer among major economies other than the UK, which had witnessed a 9.6% contraction in the July-September period. However, the US recorded a fall of only 2.9%, Germany 5.8%, France 4.3%, Italy 4.7% and Japan 5.8%. However, China actually recorded an expansion of 4.9% in the September quarter.

Maintaining that he is “cautiously optimistic”, the CEA highlighted that this caution is warranted in light of the fact that the economic contraction is primarily driven by the pandemic.

Also, given the uncertainty, it is difficult to predict if the economy will enter the positive territory in the third or fourth quarters of this fiscal.

Asked about the government’s growth projections for the entire fiscal, Subramanian said: “I would say that the given what we have seen in Q1 and Q2 and with the optimism that is being seen in the (latest estimates, I do see upside potential in that estimate given the good recovery that is happening.”

He further said that food inflation is expected to soften in the third quarter and it is something which has to be tracked closely.

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