Farmers load a tractor with bales of finger millet crop, on the outskirts of Bangalore on January 4, 2021. Photo: AFP: Manjunath Kiran

While the Indian government and the central bank claim that the economy is recovering at a rapid clip after the Covid-19 pandemic fallout, noted economist Arun Kumar expects a steep contraction in the current fiscal year and a slower recovery.

Interviewed by Press Trust of India, he said the economy is not recovering as fast as the government claims and it may contract 25% in the current financial year. That drop would be over three times the a figure projected by the Reserve Bank of India (-7.5%) and the National Statistical Office (-7.7%).

He pointed out that the unorganized sector has not started recovering and some major components of the services sector have not recovered. “My analysis shows that the rate of growth will be minus-25% in the current financial year because during lockdown (during April-May), only essential production was taking place, and even in agriculture there was no growth,” he told the news agency.

According to the National Statistical Office, the Indian economy contracted by 23.9% during the April-June 2020 quarter and recovered faster than expected in the subsequent quarter with a lower contraction of 7.5%. Many analysts had earlier projected the July-September contraction to be above 10%. Following the release of these numbers, many brokerages had revisited their earlier forecast and lowered the annual contraction estimates. The Reserve Bank has projected that in the October-December quarter, the real gross domestic product growth could break out into positive territory with a slender growth of 0.1%.

Kumar said the government later will revise its document that provided April-June and July-September quarters gross domestic product figures. He also said that due to a big decline in the gross domestic product during the current financial year, the government’s budget estimates have gone completely out of whack and, therefore, there is a need to correct the budget.

Earlier former chief statistician and noted economist Pronab Sen had projected the gross domestic product to contract 10% for the current fiscal year. He had also expressed concern about the country’s prevailing macroeconomic situation.

Slow recovery

Kumar said recovery will depend on several factors including how quickly vaccination can be done and how soon people can go back to their work. “We are not going back to the 2019 level of output in 2021. Maybe in 2022, after the vaccination is done, we will recover back to the 2019 level of output,” he said. The growth rate in the coming years will be good because of low base effect, but the output will be less than 2019, he added.

He expects the country’s fiscal deficit to be higher than last year’s and expects the state governments, too, to post much higher deficits. “Disinvestment revenue will also be short; tax and non-tax revenues will be short,” Kumar said.

Earlier, former central bank chief Raghuram Rajan had also forecast a slow recovery from the pandemic induced slowdown. He said he guessed it would be late in 2022 before the country could return to “where we might have been, before the pandemic – and of course, then, to make up the ground that we lost because we were growing at 4% or 5% before then, it will take a little longer to go back to status quo.”