Economy could add just 1% in real terms in 2021-2022: report

Mumbai: The economy, although forecast to grow 9.6% over the next fiscal year in terms of year-over-year growth, may only grow 1% in real terms at Rs 147.17 crore lakh against Rs 145.66 lakh crore in 2019-20, at 2011-12 prices, according to a report by India Ratings. The size of the economy, according to data from the National Statistical Office, stood at Rs 145.66 lakh crore in 2019-20, at 2011-12 prices.

According to the rating agency, the country’s gross domestic product (GDP) is expected to contract 7.8% to Rs 134.33 lakh crore in 2020-2021, but could grow by 9.6% to Rs 147.17 crore lakh in 2021-22.

In the first quarter of the current fiscal year which was hit by the lockdown, GDP fell 23.9% year-on-year, while the industrial production index (IIP) contracted by 35.9 %. But, during a dramatic recovery, the GDP contraction was 7.5 percent in the second quarter, while the PII contraction was only 5.9 percent year-on-year.

“These growth figures suggest a strong V-shaped recovery, suggesting that the economy is out of the woods and on track for a strong recovery. Even a moderate improvement in the first and second quarters of the fiscal year 22 reflects decent annualized GDP and PII growth due to the weak base, ”India Ratings said in the report.

He added that due to the weak base of 2020-2021, the full-year GDP growth of 2021-22 on an annual basis is expected to be doing pretty well, and our growth projections for 2021-22 are 9. 6%.

However, in annual terms 2021-22 will look like a good year, but in real terms it would only be slightly better than 2019-20, “with production just 1% higher than the level in FY20 to Rs 147.17 lakh crore on Rs 145.66 lakh crore in FY20, ”the agency said.

This suggests that the economy will only be able to recover the ground lost in 2021-2022 and not significantly exceed the level of the 2019-2020 GDP until 2022-2023.

Because the projected GDP growth for 2021-2022 indicates the worst is over, it still does not indicate whether the economy has made up lost ground, he added.

In annual comparison, the base plays an important role in determining growth. Therefore, any sudden or abnormal movement of the magnitude of the variable in either direction can result in a year-over-year change, which could be more outlier than a normal number, the report says.

Another way to assess recovery is to assume it in the absence of a pandemic. “Assuming modest GDP growth of 5% each in 2020-2021 and 2021-2022, the economy in 2020-2021 and 2021-2022 would have been Rs 152.94 lakh crore and Rs 160.59 lakh crore respectively” , the agency said.

He added, however, that based on the above calculation, even with 9.6% GDP growth, the size of the economy in 2021-22 will only be 147.17 lakh crore. “To reach a crore size of Rs 160.59 lakh, it will take 19.5 percent GDP growth in FY22.”