India’s GDP growth to depend on effectiveness of stimulus package: NCAER

26 Jun 2020 Evaluate

Giving a wide-ranging forecast for Gross Domestic Product (GDP) in the current fiscal (FY21), think-tank National Council of Applied Economic Research (NCAER) in its latest report said that actual economic growth would depend on the effectiveness of the stimulus package announced by the government to mitigate impact of coronavirus pandemic. However, it said for the stimulus announced by the government and the initiatives taken by the Reserve Bank, GDP in 2020-21 would have contracted by 12.4 percent.

NCAER stated that while a decline in GDP could be significantly contained by the stimulus measures already announced, the actual outcome will depend on the strength of the supply recovery. The annual GDP forecast by NCAER under different scenarios with varying degrees of efficacy of the stimulus package ranges from nil growth to a contraction of 10 percent for 2020-21. It said ‘building on this base case (1.33 percent growth after assuming stimulus but no supply disruptions), we provide four alternative scenarios where we assume that supply disruptions will limit GDP growth to 0 percent, and then more stringently to -2, -5, and -10 percent growth in FY20-21.’

It further said the outlook for agriculture looks positive. It said ‘it is the only sector where we expect positive growth even in the absence of significant stimulus and this is because the availability of the main inputs is reportedly comfortable, the South-West monsoon is expected to be normal, and the incidence of pests and diseases is expected to remain below the economic threshold level.’ On the industrial sector, its assessment is that industrial real gross value added (GVA) may have declined by (-) 54.2 percent in the first quarter of 2020-21. It further expects it to gradually recover to zero percent growth by the fourth quarter, implying an annual decline of (-) 27.1 percent for 2020-21, but this does not take into account the impact of fiscal and monetary stimulus measures. It added that the actual outcome will depend on the demand-stimulating impact of these measures and the strength of the supply response.

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