Low private consumption key challenge to achieve growth of over 8%: report
The slow pace of private consumption demand, along with the COVID-19 pandemic, are the main obstacles to above 8% growth in fiscal 23, consulting firm EY India said.
Containment of COVID-19, including its emerging strains, will be “a function of vaccine coverage and its intensity in terms of number of doses, including booster doses,” he said.
“India may need to expand coverage to include children and provide booster doses to frontline workers and vulnerable segments of the population.
“On the economic and fiscal front, India would need in the medium term a return to fiscal consolidation with a carefully recalibrated adjustment path and an increase in savings and investment rates of 2 to 3% on average, “he said.
According to EY India, in order to lay a solid foundation for “Atma Nirbhar Bharat”, the Center recently approved an expenditure of 230,000 crore rupees as part of a comprehensive development incentive program under a production-linked incentive program (PLI), computer hardware, ACC battery, automotive components, telecommunications and networking products, and solar photovoltaic modules, among other products.
“This will position India as a global hub for electronics manufacturing with an emphasis on semiconductor production.”
In addition, the RBI, in its monetary policy statement of December 8, 2021, left the repo and reverse repo rates unchanged while continuing its accommodative policy.
“Thus, the repo rate has been maintained at 4% since May 2020. Monetary policy remaining passive for a long time vis-à-vis growth and inflation, active political support for growth must continue to come. on the budgetary side.
“The RBI maintained its estimate of annual real GDP growth for fiscal 22 at 9.5 percent, although it revised its estimate of third-quarter growth from 6.8 percent to 6, downward. 6% and its estimated fourth quarter growth of 6.1% to 6%.
In addition, the RBI kept its annual estimate of CPI inflation at 5.3% while revising its Q3 projection upward to 5.1% from 4.5% and downward, its 4th quarter valuation at 5.7% against 5.8%.
Regarding this, EY said, “The growth risk factors highlighted by the RBI are linked to a potential resurgence of COVID-19 infections with new mutations and persistent bottlenecks on the supply side.
“Risks to the inflation outlook include cost pressures from high industrial commodity prices, transportation costs and global supply chain issues. The RBI has acknowledged that the resumption of private investment and private consumption was still below their pre-pandemic levels. “
According to the report, a notable difference between FY20, the pre-COVID-19 year, and FY22, the current year, is the comparatively high growth and dynamism of the Central Gross Tax Revenue (GTR).
In 1HFY22, Central RWG growth at 64.2% and buoyancy at 2.7 are significantly higher than the corresponding figures for FY20.
“Central RWG growth in 1HFY20 was only 1.5%. In fact, there was a contraction of (-) 3.4% in FY20. Faced with such low incomes, the central government was unable to implement a significant fiscal stimulus in FY20 so even that real GDP growth fell to 4 percent.
“In contrast, the government is in a much stronger position in FY22. So the key to achieving 9.5% annual real GDP growth in FY22 is the focus put by the government on infrastructure spending, as evidenced by its capital spending. “
This trend, EY said, is also reflected in the high real GVA growth of 17.4% in public administration, defense and other services in fiscal year 2QFY22.
“It is imperative that this momentum be sustained through the remainder of the year.
(With IANS entries)
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Posted on: Monday December 27th, 2021 09:22 IST