The economy will likely grow at 6.5-7% in FY23 and the rate of expansion could further accelerate thereafter, as the fruits of structural reforms undertaken in the wake of the Covid-19 pandemic will be visible in the coming years, chief economic advisor (CEA) Krishnamurthy V Subramanian said on Monday.
In the current fiscal, the growth rate will be a “ballpark figure” around the estimate (11%) firmed up by the economic survey on January 29 (before the onslaught of the second Covid wave), Subramanian said at a virtual industry event. The economic impact of the second wave was much less severe than the last one, he added. Last week, the Reserve Bank of India (RBI) projected India’s FY22 growth at 10.5%.
The resurgence of growth will be driven by a sustained capex push and the budgetary targets will be met, the CEA stressed, seeking to allay fears that a re-prioritisation of expenditure in the aftermath of the second wave could reduce allocation for productive spending.
The Centre has budgeted a 30% rise, year on year, in capex to `5.54 lakh crore for FY22, while its revenue expenditure is targeted to drop by 5% to `29.29 lakh crore. In the first two months of this fiscal, budget capex has grown by 14% from a year before, and large CPSEs have also acquitted themselves well in sticking to their investment targets, thanks partly to constant prodding by the government.
The CEA said just like the 1991 reforms, the important structural measures, especially in factors of production, taken in recent months will produce results with a time lag. The Modi government has taken care to boost both the supply and demand side of the economy, he said. Otherwise, it will add to inflationary pressure.
The steps initiated (by the UPA government) after the 2008 global financial crisis involved a great deal of revenue spending, which drove up fiscal as well as current account deficit and stoked inflation, Subramanian said.
However, the current government has stepped up focus on the more productive capital spending, which has a high multiplier of 4.5, against less than 1 in revenue expenditure, he added.
The CEA highlighted that India was a rare country in the sense it didn’t just roll out relief measures after the pandemic but brought in credible reforms as well, using the adversity as an opportunity.
Subramanian listed several reform measures initiated in recent months, including the setting up of a development finance institution, sovereign backing for bad bank, further opening up of the insurance sector to foreign investment and curbing of overbearing government presence in various sectors to encourage further private participation.
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