Robust recovery: Expect double-digit growth in FY22, says CEA

Various independent agencies, including the International Monetary Fund, have projected India’s growth in the range of 8.7%to 9.4% in FY22.

PTI Photo

India’s recovery remained robust in the second quarter and the economy will likely grow in double digits in the current fiscal, chief economic advisor (CEA) Krishnamurthy V Subramanian said on Tuesday. He projected real growth to remain in the range of 6.5% to 7% in FY23 and over 7% thereafter, supported by “seminal reforms” undertaken by the government in recent years. He was briefing reporters after official data showed real GDP grew by 8.4% in the second quarters, compared with a contraction of 7.4% a year earlier, and was still higher by 0.3% from the pre-pandemic (same period in FY20) level.

Various independent agencies, including the International Monetary Fund, have projected India’s growth in the range of 8.7%to 9.4% in FY22. The RBI has predicted a 9.5% expansion for this fiscal.

Subramanian stressed that the government’s repeal of the farm laws doesn’t in any way reflect weakening of its resolve for reforms, seeking to allay fears that the Centre may give in to pressure tactics and backtrack on other key reform initiatives as well.

Responding to a question on the fate of reforms in other areas in the wake of the move to withdraw the farm laws, the CEA highlighted the difference between the sensitivity attached to the farm sector in an economy like ours and that to other sectors. Therefore, any extrapolation of the government’s reform drive based on its decision on the farm front is “something I would not recommend”, he asserted.

The government obtained Parliamentary clearance on Monday to repeal three farm laws, as it failed to persuade protesting farmers–especially from Punjab, Haryana and western Uttar Pradesh—about the benefits of the new legislations. The laws were intended to give freedom to farmers to sell their produce outside the notified APMC market yards without any levy and ensure remunerative prices to them by facilitating competitive alternative trading channels, among others.

Subramanian defended the government’s decision to roll out a judicious mix of both supply and demand-side relief measures in the aftermath of the pandemic, instead of heeding calls from some quarters to stimulate mainly the demand side. Inflation in the US has hit a 30-year high now, he highlighted, as its policies were focussed on the demand side.

“Inflation should remain in control in India now because of clear policy focus on supply-side measures while enhancing demand,” he said.

Rapid vaccination has expedited rebound in demand and supply, and the recovering services sector will provide fillip to consumption. Only demand-side intervention would have temporarily spurred demand but raised inflation too, he said.

Instead, the government’s fiscal focus on Capex will enhance supply in the economy. While the pandemic has hit the informal sector more than the formal one, hysteresis (typically refers to an event in the economy that persists even after the factors that caused it have been removed) is less likely because of high labour-intensity in the unorganised sector, he said.

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