New Delhi: The Narendra Modi government expects a V-shaped recovery with growth picking up in 2021-22, said Tarun Bajaj, Secretary, Department of Economic Affairs in the Ministry of Finance.
Speaking at a conference Thursday organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), Bajaj said advance tax collection figures indicate that the contraction in the economy forecast by many financial institutions might not be as bad as anticipated unless there is an unexpected development.
“I am hopeful of a V-shaped recovery. This year may be lost to us but expect recovery next year,” he said, adding that the revenue collections so far are also “okay”.
“We may not meet the budgeted numbers for tax collection but it may not be as bad as anticipated,” he said.
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Govt optimism backed by tax collections
Gross tax collections from personal income tax and corporate taxes in the April-June quarter were at 77 per cent of the tax collected in the corresponding quarter last year. The government thinks this number indicates that economic activity revived in June following the two-month nationwide lockdown that began on 25 March to contain the spread of Covid-19. The GST numbers for June have also boosted the government’s optimism.
The government has also said there are visible green shoots in the economy like increased power demand and freight movement.
Financial institutions and economists have forecast that the Indian economy will contract by 5-12 per cent in 2020-21 but growth will rebound in 2021-22.
The government and the Reserve Bank of India announced economic measures amounting to more than Rs 21 lakh crore but mainly in the form of liquidity support to industries.
On Wednesday, Chief Economic Advisor Krishnamurthy Subramanian indicated that the government may provide a fiscal push to revive demand only after there is certainty over a Covid-19 vaccine.
India has just begun the process of conducting human clinical trials for the indigenously developed Covid vaccine, Covaxin. Earlier this week, Oxford University came out with promising data from the trials on the vaccine it is developing.
Bajaj outlined the government’s plan to provide more incentives to the different sectors besides the already announced production-linked incentive scheme for pharmaceuticals and electronic manufacturing.
“We will soon announce production-linked incentives for 4-5 more sectors which are either sunrise sectors or export-oriented sectors,” he said.
Bajaj said the government is encouraging infrastructure departments to continue with their expenditure plans. He also added that the finance ministry is working with other ministries — such as railways, power, shipping and highways — to monetise assets to help infrastructure funding.
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A lot will depend on how much the economy contracts in the current year. Goldman Sachs’ 4.5% is an undercount, even 10% may be conservative. Unfortunately, the government’s fiscal constraints do not allow it to support either households or businesses on the scale required to see them through the pandemic and bounce back.