The government admitted for the first time that India could see an economic contraction during the current financial year, although chief economic adviser (CEA) Krishnamurthy Subramanian built in a caveat that activity in the second half of the fiscal held the key. Subramanian, who had projected 1.5-2% growth at the start of the lockdown in early April, on the assumption that there would be a V-shaped recovery, told reporters that things remained uncertain. Since April, most global agencies as well as the RBI have forecast a fall in India’s GDP this year due to the disruption caused by the coronavirus pandemic.
“... what is uncertain though (is) whether the recovery will happen in the second half of the year or will it happen next year and therefore the actual growth will depend critically on when the recovery happens. If recovery does not happen this year, the economy will basically have a decline in output this year and suppose in the second half there is a recovery, that may be limited,” Subramanian said, adding that the Centre was working on a large range of growth estimates.
The CEA, however, said that a series of reform initiatives announced by the government will push up the overall pace of expansion in the coming years. Although he cited the rating actions and projections made by Standard and Poor’s and Fitch, Subramanian argued that India’s fundamentals as well as its willingness and ability to pay demanded a higher rating.
While Moody’s had downgraded India’s sovereign rating to the lowest investment grade, S&P retained the rating as well as the outlook, a move that will help India be part of the global bond indices and tap into a large pool of investment opportunity.
“This clears the path for us to proceed ahead on that move,” the CEA said. He also said that S&P and Fitch, which have projected a sharp rebound in growth rates during the next financial year, had acknowledged the steps taken by the government across sectors.
