GDP would have shrunk 12% sans stimulus: NCAER

The National Council of Applied Economic Research (NCAER) on Thursday estimated that the economy would have contracted 12.4 per cent in the current financial year (FY21) had there been no support measures from the government and the Reserve Bank of India (RBI).

Under this scenario, gross value added (GVA) would have contracted 25.7 per cent in the first quarter, 16.7 per cent in the second quarter and 8.1 per cent in the third quarter before growing 0.5 per cent in the fourth quarter of FY21. However, the Council now expects the economy to grow by 1.3 per cent in FY21, given that there is no supply-side disruption.

But given that there have been supply disruptions due to the nationwide lockdown, NCAER has provided four scenarios where the economy may witness flat GDP growth, or GDP contraction of two, five and 10 per cent.

“The results suggest that while a decline in GDP could be significantly contained by these measures (by the government and RBI), the actual outcomes will depend on the strength of the supply response and the extent to which the lockdownrelated supply disruptions are overcome,” NCAER said.

These four scenarios suggest that the inflation rate would rise moderately to 6-8 per cent and the current account deficit would remain below 3 percent of GDP. The combined fiscal deficit of the Centre and the states would be contained below 8 per cent of GDP, it said.

The country went into a lockdown in March-end to stem the spread of the Covid-19 pandemic, bringing all economic activity to a grinding halt.

On Wednesday, The International Monetary Fund (IMF) warned that the Indian economy faces an even deeper downturn than what it had projected in April as the country grapples with the Covid-19 pandemic. IMF has projected a sharp contraction of 4.5 per cent in FY 21, a steep drop from its April forecast of a 1.9 per cent expansion. The latest projection is the lowest in several decades.

In fact, India faced the sharpest cut in the outlook — a 6.4 percentage point revision due to a more severe fallout of the pandemic than anticipated.