Meeting the IMF, RBI forecast of 9.5% GDP growth this year now a challenge, says Dr Rangarajan

Dr Rangarajan feels that perhaps we may end the year with GDP growth in the region of 7 or 8 per cent.

What adds to the concern, says Dr Rangarajan, is the relatively low growth number posted in the manufacturing sector at 5.5 per cent

The much awaited news on the second quarter Gross Domestic Product (GDP) numbers showing a growth of 8.4 percent as compared to 7.4 percent contraction in Q2 2020-21, has come as a dampner. Economists now see serious challenges in India being able to hit the full year GDP growth of 9.5 per cent that have been forecast by the International Monetary Fund (IMF) and the Reserve Bank of India (RBI).

The National Statistical Office (NSO) of the Ministry of Statistics and Programme Implementation, releasing the estimates of GDP for the second quarter (July-September) of 2021- 22 (Q2 2021-22) on Tuesday, November 30th , show the GDP at constant (2011-12) prices in Q2 2021-22 at ₹35.73 lakh crore, as against ₹32.97 lakh crore in Q2 2020-21, showing a growth of 8.4 percent as compared to 7.4 percent contraction in Q2 2020-21. For the first quarter as a whole too, there is much ground that still remains to be covered.

The GDP at constant (2011-12) prices in April-September 2021-22 (H1 2021-22) is estimated at ₹68.11 lakh crore as against ₹59.92 lakh crores during the corresponding period of previous year, showing a growth of 13.7 percent in H1 2021-22 as against contraction of 15.9 percent during the same period last year. Reacting to the numbers, Dr C Rangarajan, economist and the former RBI governor says, “the second quarter GDP numbers seem to be just making up for the decline and there is not much positive growth beyond that and therefore unless the quarter three and quarter four growth is strong, it is unlikely that we will get the 9.5 per cent growth for this year as a whole that is being forecast by the IMF and the RBI.” He now feels that perhaps we may end the year with GDP growth in the region of 7 or 8 per cent. But then, much depends on the growth numbers in the remaining quarters and the growth numbers for the third and fourth quarter depend on a variety of factors.

Ground yet to be covered

Agrees Ajay Pandey, professor of finance and accounting at the Indian Institute of Management (IIM), Ahmedabad. While he does see the need to look at the numbers closely and watch the third and fourth quarter unfold, he does feel that on the face of it, the GDP numbers for the second quarter do not seem to suggest that we have covered the lost ground adequately because there is still room for substantial growth if we need to really see the economy bounce back.

Those within the industry point to several woes: Other than the snarled supply chains and rising input prices, there is also now the uncertainty around Covid-19 itself and how the virus will now unfold in the light of the new variant. The growth for the first half is also less then the same period last year also seems to suggest that the growth this time has not compensated for the decline and not covered for a shortfall. Already, the third quarter for the current year is nearly over so it appears challenging on how there will be extraordinary growth in the remaining two quarters. In the third quarter last year the GDP growth was 0.4 per cent and 1.6 per cent growth in the fourth quarter.

What adds to the concern, says Dr Rangarajan, is the relatively low growth number posted in the manufacturing sector at 5.5 per cent. As one leading industrialist put it: the second quarter GDP numbers are essentially cancelling out the minus 7.4 per cent of second quarter last year.

The big question most now seem worried about is how will the industry respond? Will it get more risk averse in an uncertain environment triggered by fresh concerns around the virus and inflation and will the consumption pick up? All of it despite the high frequency indicators pointing to recovery, higher tax collections and greater formalization of the economy seems to be only adding to the worries.

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