Post-third Covid wave economic reset by year-end: Finance Ministry

Manufacturing, construction to drive growth on back of PLIs & spending on infra

With the muted impact of the third wave of the pandemic on economic activity, the Indian economy may undergo an economic reset by end of the year, clocking 9 per cent growth in 2021-22 (FY22) and around 8 per cent in 2022-23 (FY23), the finance ministry said on Wednesday.

“The Budget has targeted a nominal gross domestic product (GDP) growth rate of 11.1 per cent in FY23, with a GDP deflator of 3-3.5 per cent. The implied real gro­wth component of around 8 per cent is close to the forecast in the Economic Sur­vey of FY22, as well as 7.8 per cent projected by the monetary policy committee (MPC) of the Reserve Bank of India in its me­eting of February,” the finance ministry said in its latest monthly economic review.

Citing examples of economic reset, the report said the agriculture sector continues to see constant increase in net-sown area. Crop diversification will strengthen food buffer, while benefiting farmers through generous volumes of procurement at remunerative minimum support prices and income transfers through Pradhan Mantri Kisan Samman Nidhi (PM Kisan).

“An additional security of the Mahatma Gandhi National Rural Employment Guarantee Scheme for the rural workforce will always be in a ready state of deployment, as was the case in the last two years. Manufacturing and construction will be the ‘growth drivers’, triggered by the production-linked incentive schemes and public capital expenditure in infrastructure,” it added.

The report said the peak of the third wave was obtained swiftly, in 31 days, compared with 79 days of the second wave and 220 days of the first wave, thereby limiting the damage to the economy.

“The third wave has been the least fatal as rapid vaccination coverage helped bring down the average daily deaths to half the level of the second wave. Daily new cases have trickled down from 310,000 on January 26 to less than 50,000 as on February 15,” it added.

As cases surged during the third wave, retail mobility declined from 2 per cent in December 2021 to minus 9.2 per cent in January amid pandemic-induced restrictions across states. The impact of the third wave is further seen in the slight dip in the volume of e-way bill generated in January vis-à-vis December 2021.

“Yet the impact was moderate, as is also seen in January volumes being higher than the November volumes of 2021. The robust e-way bill generation will most likely continue to garner monthly goods and services tax (GST) collections above Rs 1 trillion. January (reflecting December transactions) recorded all-time high GST collection of Rs 1.41 trillion, following administrative measures to enhance compliance and rate rationalisation measures to correct the inverted duty structure,” stated the finance ministry.

The report said the unchanged repo and reverse repo rate, along with the MPC’s accommodative stance, prioritise growth during these uncertain times and reinforce the investment orientation of the Budget.

“Should retail inflation remain rangebound at 4.5 per cent, as projected by the MPC in FY23, liquidity levels in the economy will remain high and interface with low interest rates to provide easier financing options to industry and individuals. Global inflation and energy prices are likely to be influential in determining India’s rate of inflation and the government expects it to decline to eventually obtain a GDP deflator of 3-3.5 per cent assumed in the Budget,” it added.