The Indian economy is not recovering as fast as the government claims and the country’s economy may contract 25 percent in the current financial year, noted economist Arun Kumar said on Sunday.
Kumar further said that due to a big decline in the GDP during the current financial year, the budget estimates have gone completely out of gear and, therefore, there is a need to correct the Budget.
The Reserve Bank of India (RBI) has projected the Indian economy to contract 7.5 percent in the current financial year, while the National Statistical Office (NSO) estimates a contraction of 7.7 percent.
“India’s economic growth is not recovering as fast as the government is showing because the unorganized sector has not started recovering and some major components of the services sector have not recovered.
Also, according to the NSO, the Indian economy contracted by 23.9 percent during the April-June 2020 quarter and recovered faster than expected in the July-September 2020 quarter as a pick-up in manufacturing helped GDP clock a lower contraction of 7.5 percent.
“My analysis shows that the rate of growth will be (-)25 percent in the current financial year because during lockdown (during April-May), only essential production was taking place and even in agriculture, there was no growth,” he told PTI in an interview.
Kumar, a former professor of economics at JNU, said the government’s own document that provided April-June and July-September quarters GDP (gross domestic product) figures said there will be a revision in the data later on.
“Disinvestment revenue will also be short. Tax and non-tax revenues will be short,” Kumar said.
He predicted that India’s fiscal deficit will be higher than it was last year and the state’s fiscal deficit will also be much higher.
He said India’s economic recovery will depend on several factors including how quickly vaccination can be done, how quickly people can go back to their work.
“We are not going back to the 2019 level of output in 2021. Maybe in 2022, after the vaccination is done, we will recover back to the 2019 level of output in 2022,” Kumar said.
Asked whether the government should relax the fiscal deficit target in the upcoming Budget, Kumar said, “It has been argued since July that the government should allow the fiscal deficit to rise and spend more and give money to the unorganized sector and in rural areas.”
He added that the growth rate in the coming years will be good because of the low base effect, but the output will be less than in 2019.
In India recently imposing fresh restrictions on foreign direct investment (FDI) from countries that share a land border with India, he said, “It is a knee-jerk reaction”. If you look at the past three-four years, all the start-ups had big investments from China, Kumar added.
He pointed out that when investments in India are lacking, restricting investments from outside is going to put us in further trouble.