Sharp growth revival going forward
The National Statistical Office (NSO) expects India’s GDP to suffer a contraction of 7.7% in 2020-21. In nominal terms, the contraction will be 4.2%. Nominal GDP is the basic premise of all budgetary calculations, as revenues are a fraction of nominal incomes. The 2020-21 Budget assumed a nominal GDP growth of 12% in the current fiscal year. The next fiscal year will see a sharp recovery on both the nominal and real GDP fronts.
India’s real GDP is expected to grow at 11% in 2021-22, which will take it to ₹149 lakh crore, more than the 2019-20 level of ₹146 lakh crore. Nominal GDP growth in 2021-22 is expected to be 15.4%, the highest since 2010-11. A high nominal growth, along with an increase in tax buoyancy, which is something the Budget can achieve, can lead to a strong revenue growth in the next fiscal year. To be sure, the Survey acknowledges that the fiscal situation has become difficult due to the pandemic. “Keeping in view the revenue shortfall and the demand for higher expenditure in the year, the government is expected to register a fiscal slippage in 2020-21,” the Survey says. “This deviation from the path of fiscal consolidation may however be transient as the fiscal indicators rebound with the recovery in the economy,” it adds.
To be sure, the index of eight core sector industries registered an annual contraction of 1.25% in December 2020, making it the third consecutive month of annual contraction after a 0.6% growth in September, according to data released on January 29.
The pandemic has also had an adverse affect on the government’s disinvestment targets. While the last Budget set a target of ₹2.1 lakh crore in 2020-21, “as on 20th January, 2021, the Government has been able to raise ₹15,220 crore. While many independent economists have criticised the government for a muted fiscal response to counter the pandemic’s disruption, the
Survey defends the policy choice by arguing that a fiscal boost during the lockdown would not have helped the economy. It cites a boost in government spending in December quarter to argue that fiscal boost has been synced with removal of restrictions.