A small positive economic growth in 2020-21 may not be ruled out as sectors such as agriculture and essential goods and services were fully operational in the first quarter despite the coronavirus-induced lockdown, according to a document written in co-authored by former RBI Governor C Rangarajan.
Rangarajan and India’s EY India Senior Policy Adviser, DK Srivastava, in a paper titled ‘India’s Growth Outlook and Policy Options: Emerging from the Shadow of the Pandemic’, stated that the history of the Indian economy tailored that unfolds under the impact of Covid-19 is disturbing.
The document noted that, although many national and international agencies have projected a strong contraction of GDP in 2020-21, ranging from the World Bank’s projection of 3.2% to 6.8% of GIS, there is reason to believe that the result may be better than these strong contractionary prospects.
“We can see that some key sectors such as agriculture and related sectors, public administration, defense services and other services may perform normally or better than normal given the demand for health services,” the newspaper said.
In addition, the document noted that goods and services categorized as essential goods and services in other sectors, technically called ‘permitted goods and services’ along with agriculture and public administration, defense and other services, may have a weight in the range of 40-50 percent of total production.
“These were fully operational even in the first quarter of 2020-21. Therefore, almost half of the economy may perform normal or better than normal throughout the 2020-21 period, ”he said.
The government imposed the nationwide lockdown as of March 25 to contain the spread of the coronavirus and continued in various phases in June, albeit with a significant reduction in restrictions since early May.
In addition, given the current geopolitical situation, the government at the central and state levels has become more active in attracting investment from abroad, the newspaper said, adding that reforms in corporate tax rates in 2019-20 will also facilitate relocation. of various productions. platforms to India.
“So a small positive growth cannot be ruled out,” the newspaper said.
India’s economy has suffered its worst decline on record in the April-June 2020-21 quarter, with gross domestic product (GDP) contracting by 23.9 percent as coronavirus-related lockdowns weighed on the Consumer demand and investment already in decline.
This is the steepest contraction since the quarterly figures began to be published in 1996 and worse than expected by most analysts.
The Indian economy was in a tumultuous state when the pandemic hit the world. Before the Covid-19 crisis hit India, the economy was already slowing down, real GDP growth had moderated from 7.0% in 2017-18 to 6.1% in 2018-19 and 4, 2% in 2019-20.
Noting that the lockdown has slowed the economy, the newspaper suggested that the need to jump-start the economy and move it forward has become urgent.
“Maintaining public spending at a high level is inevitable and the monetization of debt is also inevitable.
“But policy makers must also be aware of the fact that there is a limit to monetization. The wisdom lies in striking the right balance,” he said.
Deficit monetization occurs when the RBI directly buys government securities on the primary market and, in turn, prints more money, helping it to bridge the fiscal deficit.
The document said that even as India takes steps to revive the economy, the country must consider the shape of the next round of reforms that would pave the way for sustained growth in the post-Covid era.
“The recapitalization of banks and the regulation of bad debts must take priority. The reform measures recently announced by the government, such as private operations in coal mining, are truly in the spirit of liberalization.
“They must be implemented with dedication and commitment,” he said.
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