Indian economy from ICU to sprint race in one year; these steroids will bring GDP growth to life

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Updated: Jun 11, 2020 5:39 PM

The economic activity is likely to see a sudden rebound as early as the second half of the current fiscal, as investments revive to feed growing supply chains.

economy, economic crisis, FY22 GDP growth, gdp growth rateWhile there seems to be a consensus that India’s GDP will most likely contract in the current fiscal year, the GDP growth rate in the next financial year may hit as much as 9.5%.

Indian economy, under a prolonged slowdown for the last two years and in acute crisis now due to coronavirus, will soon spring into hyperactivity, rebounding from a contraction this fiscal year to a scorching growth rate next financial year. With the economy struggling due to the spread of coronavirus, nearly all sectors face uncertainty and pessimism over business conditions. However, the economic activity is likely to see a sudden rebound as early as the second half of the current fiscal, as investments revive to feed growing supply chains. While there seems to be a consensus that India’s GDP will most likely contract in the current fiscal year, the GDP growth rate in the next financial year may hit as much as 9.5%, according to Fitch estimates.

“Our projection for FY21 GDP growth is -4.7 per cent and 7.2 per cent for FY22,” Sameer Narang, Chief Economist, Bank of Baroda, told Financial Express Online. With the supply-side achieving normalcy, the investment cycle will also pick up with a lag, accelerating in FY22 over and above the contraction in FY21, Sameer Narang added. However, what cannot be ignored is the base effect, which has the potential to further boost the next fiscal’s economic growth due to a steep fall in the economy in the current year.

Even before coronavirus hit India, the growth slowdown continued for a long time. After the nationwide lockdown, the economy had a free fall and factors like tight financial conditions, weakening household and corporate balance sheets, sluggish private expenditure, and a lack of business confidence further hurt the overall economic prospects.

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To overcome these crises, the government will have to loosen its fiscal strings further in 2HFY21 if growth prospects remain weak, Madhavi Arora, Lead Economist, Edelweiss, said in a report. FY21 growth is projected at -4 per cent even as 2HFY21 will see a significant pickup in economic activity, Madhavi Arora added. However, sustaining the sequential growth momentum beyond FY21 will require an easing of domestic structural overhang and better global backdrop, she further said.

Meanwhile, Fitch Ratings has predicted that India’s economy will bounce back with a sharp growth rate of 9.5 per cent in the next financial year 2021-22, provided it avoids further deterioration in the financial sector health. S&P global ratings has also predicted that India’s economy will grow at a comparatively much higher rate of 8.5 per cent in the next fiscal. 

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