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After some hiccups, India’s growth story will reboot in the second half of 2021-22

After some hiccups, India's growth story will reboot in the second half of 2021-22

Even as Indian economy finally returned to a growth path with a 0.4 per cent expansion in the third quarter of this financial year, economists said that it was a tad lower than expected. The government in its second advance estimate has projected a contraction of 8 per cent for the full year, implying that the fourth quarter growth could also remain subdued.

Earlier the first advance estimate pegged the economic contraction at 7.7 per cent.

However, economists said that it not alarming as recovering from a sharp contraction “could have its own little fluctuations.” It is important to note that earlier in the financial year, many think tanks had pointed out a double-digit contraction for India for the full year.

As per the revised growth numbers released yesterday, India’s economy contracted by 24.4 per cent in the first quarter owing to a stringent Covid 19 induced lockdown while in the second quarter it was a (-) 7.3 per cent.

While the overall picture of growth numbers suggest that India has managed to get its act right, some hiccups will remain for the next few months.

“The real growth with pick up in economic activities to a normal level will be seen from the next financial year,” Deepak Sood secretary general, Assocham said, adding that the results of the stimulus package would be visible from 2021-22.

The Centre thrashed out a stimulus package of Rs 29.87 lakh crore — equivalent to 15 per cent of the GDP — in a bid to contain the impact of the virus on health and economy.

Sood noted that sentiments are up once again with the current Covid 19 vaccination drive.

What remains an area of concern is the muted private as well as government consumption. Though it shows an improvement from the second quarter levels, they continue to be in the negative zone. “Overall, private consumption may lead the recovery process, aided by high public capex spending ahead,” said financial services major Emkay Global.

Focus on reforms chalked out in Union Budget will be key to boost economic growth in 2021-22

The Union Budget of 2021-22 has prioritized economic growth, laying a roadmap for critical reform process. Finance Minister Nirmala Sitharaman has thrashed out bold reform measures to expedite the economic growth process but implementation will be crucial.

Amid tight fiscal space, Sitharaman, with an eye on growth and job creation, proposed a 34.5 per cent hike capital expenditure spending in the new financial year.

This is expected to boost the infrastructure sector which will have a multiplier effect on other sectors of the economy. She has also outlined broad measures to put back the economy on track, which will help India get into the $5 trillion economy club.

“To ensure that the economic growth projections for 2021-22 are adhered to, it is crucial to focus on implementation of the Budget prescription. We will see real economic growth to pick up only in 2022. In the next financial year too, irrespective of growth projections, at best we will touch the pre-Covid levels,” Nirupama Soundararajan, senior fellow and head of research, Pahle India Foundation (PIF).

The International Monetary Fund in its World Economic Outlook released recently pegged India’s growth rate at 11.5 per cent in 2021 and 6.8 per cent in 2022. This would make India the fastest growing economy in the world in the aftermath of the Covid-19 pandemic.