Revival in sight: Economic Survey pegs FY21 GDP growth at 6-6.5%

Fiscal targets may have to be relaxed for the current year

The 2019-20 Economic Survey on Friday forecast real gross domestic product (GDP) growth at 6-6.5 per cent for the fiscal year 2020-21 (FY21), saying growth has been rebounding from the second half of FY20, and will continue to be on the uptick in the coming year.

The Survey said the Centre will have to relax the fiscal deficit target for FY20.

“Going forward, considering the urgent priority of the government to revive growth in the economy, the fiscal deficit target may have to be relaxed for the current year,” said the Survey, tabled in Parliament a day before Finance Minister Nirmala Sitharaman presents the 2020-21 Union Budget.

“GDP growth should strongly rebound in 2020-21 and more so on a low statistical base of 5 per cent growth in 2019-20. On net assessment of both the downside and upside risks, India’s GDP is expected to grow in the range of 6 to 6.5 per cent in 2020-21,” said the Survey, drafted by Chief Economic Advisor Krishnamurthy Subramanian and team. These figures were first reported by Business Standard in December.

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By the Survey’s own admission, this is higher than some other projections for India by multilateral institutions. The International Monetary Fund and the World Bank have projected a real GDP growth rate of 5.8 per cent for FY21.

Separately, the Reserve Bank of India has projected growth at 5.9-6.3 per cent for the first half of FY21 (April-September, 2020).

The Survey listed a number of upside and downside risks upon which its growth forecasts are conditional. Among the downside risks to its GDP forecast, it listed the ongoing the situation in West Asia and its impact on crude prices, trade tensions, bankruptcy process not speeding up and higher public investment under the National Infrastructure Pipeline indirectly crowding out private investment.

Among the upside risks are an expected rise in exports activity, favourable global sentiments, boost from the corporate tax rate cuts, and an increased thrust on Make

in India.

“On a net assessment, it appears that the upside risks should prevail, particularly when the government, with a strong mandate, has the capacity to deliver expeditiously on reforms,” the Survey said.

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On the fiscal front, the survey said tax revenues for FY20 would be muted relative to the target envisaged in the 2019-20 Budget. The gap, owing to lower tax receipts, could be to some extent compensated by higher non-tax revenue and disinvestment proceeds, a strategy which wasn’t sustainable in the long run, it said.

While the Survey did not state any number, it is expected that tax revenue could fall short by Rs 1.5 trillion this year.

The Survey said any cut in expenditure, especially capital expenditure, would have adverse implications for growth. “The focus of the government should lie on rationalisation of subsidies.

Further, to boost the domestic demand which is crucial for revival of growth, the fiscal deficit target may have to be relaxed for the current year,” it said.