India May Post Lowest Growth in Post-reform Period in FY21 Due to COVID-19 Lockdown, Says Economist

Indian economy, which was already in slowdown phase for last six quarters, could register the lowest growth in the post-reform period in 2020-21 despite strong monetary and fiscal stimulus measures, an eminent economist said on Friday.

N R Bhanumurthy, a Professor at National Institute of Public Finance and Policy, said that with the current lockdown, the state of the Indian economy has aggravated further.

“With the current lockdown, the current situation in the Indian economy, which was already in slowdown phase for over six quarters, has actually aggravated further.

“Assuming that the situation could improve in a quarter, in 2020-21, the Indian economy could register the lowest growth that was experienced in the post-reform period (since 1991). This is despite strong monetary and fiscal stimulus measures introduced since February 2020,” he told PTI in an interview.

Multilateral agency ADB expects India’s economic growth to slow down to 4 pc in FY2021 due to COVID-19 pandemic.

Moody’s Investor Service last month also slashed its estimate for India’s GDP growth during 2020 calendar year to 2.5 per cent and said that coronavirus outbreak will cause unprecedented shock to the global economy.

Asked whether under the current circumstances, India can achieve the target of becoming a USD 5 trillion economy by 2024-25, Bhanumurthy said that some of his studies have shown that achieving this target even in good times was difficult given the slowing economy.

“Now that the world is expected to get into a recessionary stage and not sure when there could be some rebound, achieving a USD 5 trillion economy is going to be a distant dream.

“Added to that the exchange rate also depreciated sharply,” he noted.

Bhanumurthy, however, added that based on NIPFP study to 15th Finance Commission, “we strongly believe that with some prudent fiscal policies, we can still achieve such big targets. But that also means government (both centre and states) needs to sacrifice a lot, though not sure if politically feasible”.

On the need for large fiscal stimulus to boost growth, he said “given the current conditions, there are fewer options on the policy front” other than large fiscal stimulus as well as reprioritizing the government expenditures.

“This has to happen even by printing more money. While the government has come out with a stimulus of Rs 1.7 lakh crore, with other measures that are brought by monetary authorities, the actual (both direct and indirect) stimulus could be much more,” Bhanumurthy emphasised.

Earlier this year, the Economic Survey had projected India’s economic growth at 6 per cent to 6.5 per cent for 2020-21 fiscal year.