Full-year GDP contraction may be less than 9%: Niti Aayog vice chairman

In a Q&A, Rajiv Kumar says GDP growth could be a small negative in Q3, positive in Q4, even as he calls for more measure to spur private investment

Niti Aayog vice chairman Rajiv Kumar tells Indivjal Dhasmana that GDP growth is likely to be a small negative in the third quarter and positive in the fourth quarter of the current financial year. He says the full year is likely to show contraction at less rate than the generally expected nine per cent. He also talks about farmers protests, manufacturing, consumer demand, fiscal deficit among other things. Edited excerpts: 

After Q2 GDP data, you have termed the speed of recovery a pleasant surprise. Eill it sustain in the second half?

I think so. The third quarter is likely to be a small negative and the fourth quarter will deliver positive economic growth. The contraction in the entire 2021-22 will be lower than the expected of nine per cent. It will be the double digit growth in the next financial year.

What numbers are you looking at when you say GDP will contract less than nine per cent?

I cannot precisely predict that at this point of time, given the uncertainty over Covid-19.

Do you see Covid cases hampering outlook in the second half?

Ans) Whatever consultations I had with experts, it seems cases have already peaked in September. Though there are uncertainties, it seems, as I have already said, that Q3 will give small negative growth and Q4 a positive growth.

Manufacturing has stood out in GDP data, even as it grew marginally at 0.6 per cent after four quarters of contraction. Are we seeing some sort of a turnaround or it was just a base effect?

It is both. It is part of the base effect because manufacturing started contracting from the second quarter of the previous year. But, it is also  performance in manufacturing. It came out from 39.3 per cent contraction in the first quarter of FY21 and moved to a positive growth in the second quarter.

Agriculture was the only sector which grew in both the quarters. But farmers are up in arms over the farm Acts? Will that affect farm growth in the coming months?

I don't think farmers are up in arms. Only small groups of farmers are protesting. It is not an all-India farmers protest. It is political. Farm Acts have been designed to improve farmers' fortunes and not hurt them. I don't think protests by small groups of farmers will harm agriculture growth. Kharif output is seen higher than previous production. Procurement has already been 18 per cent higher.

But were the contents of the Bills not properly communicated to farmers?

No, this impression is not correct. Lots of consultations with farmers happened. My colleague Ramesh Chand in Niti Aayog himself talked to farmers over the farm Acts, as did others in the government. Their feedback was also taken into account while framing the Bills.

Contraction in gross fixed capital formation was still high at 7.3 per cent in Q2. Do you think it will reverse the trend in the second half?

Yes, that is a concern. Credit growth is not picking up. The  government has taken various steps to perk up investments. I think more measures need to be considered to encourage private investments.

Contraction in final private consumption expenditure was also high at 11.3 per cent in Q2. The recent rise in consumer spending after Q2 was due to festival months. Will that sustain once the season ends?

You see sales in various segments such as auto. It seems consumers are spending quite a lot more now. It will definitely sustain beyond festival months. As I said the fourth quarter will show a positive growth in GDP.

The government final consumption expenditure declined 22 per cent in Q2. But, October saw a rise in capex. Will the expected rise in the capex in H2 give further boost to GDP in H2?

Both the numbers -- decline in final consumption expenditure in Q2 and rise in capex in October-- must be read in conjunction. The government has created a fiscal space by reducing consumption expenditure to give a boost to its capex. It will definitely give boost to economic activities.

The Budget making process is on. What advice will you give the finance minister given the economic slowdown?

Ans) I would not like to comment on it publicly.

Do you think the government will be able to return to the fiscal consolidation road map next year or will the road map have to be altered now?

This is surely not the most important issue at this juncture. The important issue is to revive economic growth, to take it to double digits in 2021-22 and sustain it. I would emphasise that controlling the fiscal deficit is not the main concern at this point.