India's economy is gradually recovering, says Montek Singh Ahluwalia

The country's economy, which contracted in the first two quarters of the current fiscal, has started recovering at a gradual pace, former deputy chairman of erstwhile Planning Commission Montek Singh Ahluwalia said on Sunday.

The economy contracted by a massive 23.9 per cent in the first quarter and 7.5 per cent in the second quarter on account of the COVID-19 pandemic.

"We had jumped off a cliff in the first quarter of this financial year because of the lockdown, which was necessitated by the pandemic. The economy is now climbing back. I think it's a gradual recovery but it is a clear recovery," Ahluwalia said at a virtual event.

According to the first advance estimates of national income released by the National Statistical Office (NSO), the country's GDP is estimated to contract by a record 7.7 per cent during the current financial year (2020-21).

An article published in the Reserve Bank of India's January Bulletin has stated that the country's GDP is within the striking distance of attaining positive growth.

Ahluwalia said the manufacturing sector is recovering and has got back to where it was in 2019-20. However, the contact industries which include hotels, restaurants, travel, tourism and retail shopping in malls are badly hit and will take some time to return to normalcy, he said.

He said the infrastructure in the country still lags behind and there is an urgent need to increase investment in the sector over the next few quarters.

"There's no doubt whatsoever for the medium term that the revival of investment in infrastructure is absolutely crucial. Our infrastructure is not up to the mark, he said.

In the next financial year, investments from private players in the infrastructure sector is unlikely to be very high in absence of adequate funding from banks who have become risk averse, he said.

"And therefore in the next year, there should be a thrust on expenditure on the infrastructure sector from the government. I would say that roads and railways are the areas where this investment should take place," Ahluwalia noted.

He lauded the government and the RBI for providing credit assistance to small scale industries that were hit severely due to the pandemic.