Economy to see robust growth on back of structural reforms, capex push: CEA

GDP data re-affirms govt's prediction of an imminent V-shaped recovery, says K V Subramanian

Chief Economic Advisor (CEA) K V Subramanian said that India’s economy is all set for robust growth on the back of government’s capex push, structural reforms, rapid inoculation and financial sector cleanup and activities would recover to pre-Covid levels by the next year.

Further, with regard to tapering by US Federal Reserve, he said that it should not be that much of a concern for India. “Whenever tapering happens, India will be in a very good position to withstand it. India’s macro-economic fundamentals much stronger now than post global financial crisis,” the CEA said.

While giving a statement on the latest GDP figures, Subramanian on Tuesday said that the increase in the GDP growth despite the intense second wave during April-June period is indicative of continued economic recovery. He said the recovery was mainly supported by rapid surge in inoculation drive, which had covered 24 per cent of India's population during the period. 

He further said that the GDP growth for the current financial year (FY22) should be around Budgeted target of 10.5-11 per cent, and that economy will be back to pre-covid levels by next year. 

“GDP data for the first quarter 2021-22 re-affirms the government's prediction of an imminent V-shaped recovery that we had made last year this time. The recovery is supported by rapid surge in vaccination coverage from 4.7 per cent of the total population in Q4 of 2020-21 to 24.5 per cent in Q1 of 2021-22,” Subramanian said

India's GDP grew 20.1 per cent in the April-June quarter of this fiscal, attributed to a low base in the year-ago period.

“India is poised for stronger growth from structural reforms enabling efficiency and productivity; government’s capex push to enable private investment and financial sector clean-up and reforms,” he highlighted.

"External sector is providing a stable cushion. Forex reserves continue to grow. Despite supply-side restrictions due to pandemic, inflation was much lower than during global financial crisis because of supply-side measures," Subramanian added.

On specific sectors, he said that there has been steady recovery in petroleum consumption and auto sales, which reached pre-pandemic levels. Overall industrial activities are picking up, however, contact-intensive service sectors have been impacted the most during the second wave and are yet to see the green shoots. Though rapid inoculation would help revive the sector, he added. 

On capex being impacted, he said that the third wave will not be as intense as second given the inoculation numbers and seroprevalence numbers so the government expects to move on with the planned capital expenditure as budgeted.

On Inflation, he said that due to calibrated monetary policy and the supply side measures, July inflation moderated despite higher commodity prices. We expect inflation to be less than 6 per cent going forward, he said.

This apart, he also mentioned that slowdown in pre-pandemic was due to financial sector problems created from bad loans originating before 2014. 

Banking sector has now developed cushion to withstand impending bad loans. For instance, Gross NPA (nonperforming asset) declined from 11.2 per cent in March (2018) to 7.4 per cent in March (2021), the CEA said.