Growth in 2020-21 to depend on efficacy of stimulus: NCAER

Giving a wide-ranging forecast for GDP in the current fiscal, think-tank NCAER on Thursday said actual economic growth would depend on the effectiveness of the stimulus package announced by the government to mitigate the impact of the COVID-19 crisis.

Giving a wide-ranging forecast for GDP in the current fiscal, think-tank NCAER on Thursday said actual economic growth would depend on the effectiveness of the stimulus package announced by the government to mitigate the impact of the COVID-19 crisis. But 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 per cent, the NCAER said in a report. It added 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 per cent for 2020-21. "Building on this base case (1.33 per cent 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 per cent, and then more stringently to -2, -5, and -10 per cent growth in FY20-21," it said. After taking into account the impact of the fiscal and monetary policy measures and the Atmanirbhar Bharat package, it said "while a decline in GDP could be significantly contained by these measures, the actual outcomes will depend on the strength of the supply response and the extent to which the lockdown-related supply disruptions are overcome." The simulations suggest that inflation would rise moderately to 6-8 per cent and the current account deficit would remain below 3 per cent of GDP

The combined fiscal deficit would be contained below 8 per cent of GDP, implying a total public sector borrowing requirement of probably around 9-10 per cent of GDP. NCAER further said the outlook for agriculture looks positive. "It is the only sector where we expect positive growth even in the absence of significant stimulus. 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," it said. On the industrial sector, its assessment is that industrial real gross value added (GVA) may have declined by (-) 54.2 per cent in the first quarter of 2020-21. "We further expect it to gradually recover to zero per cent growth by the fourth quarter, implying an annual decline of (-) 27.1 per cent for 2020-21, but this does not take into account the impact of fiscal and monetary stimulus measures," it said. The actual outcome will depend on the demand-stimulating impact of these measures and the strength of the supply response. It is likely that the net impact will be a decline in industrial output for the year as a whole, the think-tank said.