Highest since independence: Economic Survey pegs GDP growth at 11% in FY22

This translates into real GDP growing only 2.4% over the absolute level of 2019-20

The Economic Survey has projected India’s economy to grow 15.4 per cent at current prices in 2021-22, which is likely to be a crucial number for key rates and ratios in the Budget, slated to be presented on Monday.

At constant prices, GDP is estimated to grow at a record high of 11 per cent during the year on the back of normalisation in economic activities with the roll-out of vaccines, coupled with supply-side reforms and a push to infrastructure.

However, it should be noted that growth would be coming on the projected contraction of the economy by 7.7 per cent. This means India’s real GDP will grow 2.4 per cent over the absolute level of 2019-20, implying that the economy would take two years to go past the pre-pandemic level.

At 15.4 per cent, GDP will be Rs 224.8 trillion next year. The Budget in all probability would assume this number and calculate figures such as tax collection, the fiscal deficit, and the investment rate as percentage of this figure. Growth will be supported by a supply-side push from reforms and the easing of regulations, infrastructural investment, a boost to manufacturing through the productivity-linked incentive scheme, a recovery of pent-up demand for services, increase in discretionary consumption subsequent to the vaccine roll-out and a pick-up in credit, given adequate liquidity and low interest rates, the Survey said. These projections are in line with the IMF’s estimate of real GDP growth of 11.5 per cent in 2021-22.

The Survey’s forecast will require a substantial push from central and state government spending, said Aditi Nayar, principal economist, ICRA. “Announcements on private sector capacity expansion are anticipated to be intermittent and sector-specific in the next couple of quarters,” she said.

The Budget is expected to incorporate a growth rate in gross tax revenues of 15-16 per cent, which, in conjunction with a stiff target for disinvestment proceeds, would allow the government to project a considerable expansion in spending, especially capital expenditure, Nayar said. The Survey has reaffirmed India’s strong recovery, resilience, and the commitment to structural reforms, said L Viswanathan, partner at Cyril Amarchand Mangaldas. “Emphasis on simpler and better-quality regulation, regulatory enforcement, and investment in supervision will strengthen the rule of law in India and form a strong foundation for the recovery,” Viswanathan said.