Global forecasting firm Oxford Economics on Wednesday revised India’s economic growth projection for 2021. The projection was upgraded to 10.2 percent from the earlier 8.8 percent. The reason cited was receding COVID-19 risks, as India’s COVID-19 positivity rate has plummeted immensely and the shift in the monetary policy outlook gives a positive outlook for a V shaped recovery.
It further added that the Budget for 2021-22 will create positive externalities for the private sector, and forecast slower fiscal consolidation in FY22 than the government projections.
Oxford economics stated that, “Alongside the planned government spending boost in Q1 and receding Covid-19 risks, the shift in the monetary policy outlook supports our 2021 growth upgrade to 10.2 percent from 8.8 percent earlier,”.
The forecasting firm also emphatically appreciated India’s latest Union Budget that has raised hopes, that fiscal policy will finally pick up the growth baton. This will ease pressure on the RBI to continue to lead the pandemic policy response. “We think the budget proposals will create positive externalities for the private sector, and forecast slower fiscal consolidation in FY2022 than the government projects.” Oxford economics experts stated.
Oxford Economics also noted that if inflation risks materialize, the RBI may have to renege on its growth commitment. This certainly presents itself as a downside risk to its growth forecast.
It also maintained that the Budget has been largely perceived as supporting growth, despite a projected narrowing of the fiscal deficit from 9.5 percent of GDP in fiscal 2020-21 (ending March 2021) to 6.8 percent in 2021-22. It further added that “In all, we do see merit in the view that the budget is growth oriented, and expect the positive spillover impact on the private sector to help nurture the ongoing recovery,” it said.
India’s budget for 2021-22 provides the much need boost for capital formation and projects huge spending in healthcare and infrastructure projects. This will have positive spillover effects as it will provide job market and private sector some relief , as it has the potential to revive demand.
As it had been reported the Economic Survey had projected an 11 percent growth for 2021-22, aided by a V-shaped recovery and a 7.7 percent contraction for the FY 2020-21. Even IMF had projected India’s GDP to grow by a significant two-digit growth number.
But it is also to be noted that the economic survey had also projected a lower 6.8 percent growth in 2022-23. The Reserve Bank of India has projected a GDP growth rate of 10.5 percent for the financial year beginning April 1, on the back of recovery in economic activities
Thus will India stand on world’s expectations or rather its own, is still a mystery.