Finance Ministry sees FY21 economic growth at 2-3% amid Covid-19 outbreak

The internal projections of 2-3% are based on the Finance Ministry's current assessment of the economic impact of the nationwide lockdown, which is in its sixth week

The Centre is yet to announce its new economic growth and budgetary estimates for 2020-21 (FY21) in light of the Covid-19 pandemic and the resultant lockdowns. But the Finance Ministry is internally projecting FY21 GDP growth to be around 2-3 per cent, down from the 6-6.5 per cent predicted in the 2019-20 Economic Survey, Business Standard has learnt.

The new projections were said to be given by Chief Economic Advisor Krishnamurthy Subramanian in a presentation he made to the 15th Finance Commission’s advisory council. The council, comprising Finance Commission members, economists, and some members of the Economic Advisory Council to the Prime Minister, held discussions through videoconference on April 23 and 24.

The internal projections of 2-3 per cent are based on the Finance Ministry’s current assessment of the economic impact of the nationwide lockdown, which is in its sixth week. Lockdown has been extended for two more weeks, but economic activity has resumed within strictly defined parameters and mostly in ‘green zones’.

“These are current projections and not the final estimates that the North Block may come up with. The situation is quite fluid and dynamic. There is no clarity on when we can bring down the number of daily new cases to an extent that the economy can be opened up more substantially,” said a person who participated in the meeting.

“A lot also depends on how soon can people come back to work, when can factories and offices fully reopen, and how well the Centre and states plan a full exit out of the lockdown,” the person said.

Officials admit the projections in the 2020-21 Union Budget and 2019-20 Economic Survey are now meaningless due to the Covid-19 slowdown. However, the government will announce new projections only after the worst of the pandemic is over and there is a greater clarity on its economic impact.

Going by the current scenario, that could be anytime in July or later. Officials also say that the internal estimates are subject to frequent revisions. Only when there is some finality on the projections will they be announced publicly.

 The Finance Ministry’s projections are also not the only ones in the government. Media reports had last month reported that NITI Aayog CEO Amitabh Kant had given some projections in an interaction with the Confederation of Indian Industry.

 

In one scenario, according to the think-tank, India’s GDP could decline by 2-3 per cent year on year in FY21 as restarting supply chains and normalising production and consumption will take 3-4 months. In another potential scenario, the GDP could decline by 8-10 per cent in FY21 if the lockdown continues in April-June and additional lockdown is imposed in July-September and October-December.

Also, Subramanian’s estimates are optimistic, compared to projections given by a few agencies, and in-line compared to some others.

The International Monetary Fund (IMF) has cut India’s growth forecast for FY21 in its World Economic Outlook report to 1.9 per cent, from 5.8 per cent projected in January. It pointed out that the Covid-19 pandemic will throw the world economy into the worst recession. 

Barclay’s slashed India’s growth projection for calendar year 2020 to zero, arguing that the 

economic impact will be worse than expected.