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Reliable data, understanding must for effective policy intervention: Ind-Ra

An appropriate understanding based on reliable data is critical to ensure effective policy intervention, India Ratings and Research (Ind-Ra) said

economic policy

Illustration by Binay Sinha

ANI Business
An appropriate understanding based on reliable data is critical to ensure effective policy intervention, India Ratings and Research (Ind-Ra) said on Thursday.
It said policy making is facing twin challenges in collating reliable high frequency data and interpreting the same as the impact of COVID-19 pandemic is proving to be an unprecedented disaster.
During the period of shocks or volatility like the one caused by COVID-19 pandemic, understanding the economic performance in level terms provides better insight than analysing year-on-year performance.
On a y-o-y comparison, base (adverse or favourable) plays an important role in determining the growth performance. Thus any abrupt or abnormal movement in the magnitude of variable in either direction can lead to a y-o-y change, which could be more of an outlier than a normal number.
For example 1Q FY21, which was impacted by stringent COVID-19-led nationwide lockdown. During this period, gross domestic product (GDP) and index of industrial production (IIP) declined 23.9 per cent y-o-y and 35.9 per cent y-o-y respectively.
However, said Ind-Ra, the pace of contraction reduced to 7.5 per cent y-o-y and 5.9 per cent y-o-y respectively in 2Q FY21.
The GDP and IIP growth suggest a strong V-shape recovery, leading to a belief that the economy is out of the woods and on the path of a strong recovery. Even a moderate improvement in 1Q FY22 and 2Q FY22 reflects a decent y-o-y GDP and IIP growth due to the low base.
In fact, due to the low base of FY21, the full year GDP growth of FY22 on a y-o-y basis is expected to do fairly well. Ind-Ra's GDP growth projections for FY22 is 9.6 per cent. Most of the other agencies have also projected a high single-digit or low double-digit GDP growth number for FY22.
"The projected GDP growth does indicate that the worst is over, but it still does not indicate whether the economy has recovered the lost ground and/or surpassed it," said Ind-Ra.
According to National Statistical Office data, the size of Indian economy in FY20 was Rs 145.66 lakh crore at 2011-12 prices. As per Ind-Ra's projection, it is expected to contract 7.8 per cent y-o-y to Rs 134.33 lakh crore in FY21 and grow 9.6 per cent y-o-y to Rs 147.17 lakh crore in FY22.
In y-o-y growth terms, although FY22 will appear to be an extremely good year, but in level terms it will only be slightly better than FY20 with output merely about one per cent higher than FY20 level.
This suggests that the economy will be able to just recover the lost ground in FY22 and surpass the FY20 GDP level in a meaningful way only in FY23, said Ind-Ra.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Dec 31 2020 | 6:47 PM IST

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