The economy, though projected to grow 9.6 per cent in the next financial year in year-on-year growth term, may grow just 1 per cent in real terms to Rs 147.17 lakh crore as against Rs 145.66 lakh crore in 2019-20, at the 2011-12 prices, according to a report by India Ratings. The size of the economy, as per the National Statistical Office's data, had stood at Rs 145.66 lakh crore in 2019-20, at the 2011-12 prices.
According to the rating agency, the country's gross domestic product (GDP) is expected to contract 7.8 per cent to Rs 134.33 lakh crore in 2020-21, but may grow 9.6 per cent to Rs 147.17 lakh crore in 2021-22. In the first quarter of the current financial year that was impacted by the lockdown, GDP tanked 23.9 per cent year-on-year, while the Index of Industrial Production (IIP) contracted 35.9 per cent. But, in a dramatic recovery, GDP contraction was 7.5 per cent in the second quarter, while IIP contraction was only 5.9 per cent y-o-y.
"These growth numbers suggest a strong V-shaped recovery, leading to the belief that the economy is out of the woods and on the path of a strong recovery. Even a moderate improvement in 1Q and Q2 of FY22 reflects a decent annualised GDP and IIP growth due to the low base," India Ratings said in the report. It added that due to the low base of 2020-21, the full-year GDP growth of 2021-22 on a y-o-y basis is expected to do fairly well, and our growth projections for 2021-22 is 9.6 per cent. However, in annual terms, 2021-22 will appear to be a good year but in actual terms, it would only be slightly better than 2019-20, "with output merely about 1 per cent higher than FY20 level at Rs 147.17 lakh crore over Rs 145.66 lakh crore in FY20", the agency said.
This suggests that the economy will be able to just recover the lost ground in 2021-22 and surpass the 2019-20 GDP level in a meaningful way only in 2022-23. Because the projected 2021-22 GDP growth indicates that the worst is over, it still does not indicate whether the economy has recovered the lost ground, it added.
In annual comparison, the base plays an important role in determining growth. Therefore, any abrupt or abnormal movement in the magnitude of the variable in either direction can lead to a y-o-y change, which could be more of an outlier than a normal number, said the report. Another way of assessing the recovery is to assume it in the absence of the pandemic. "Assuming a modest GDP growth of 5 per cent each in 2020-21 and 2021-22, the economy in 2020-21 and 2021-22 would have been Rs 152.94 lakh crore and Rs 160.59 lakh crore, respectively," the agency said.
It, however, added that based on the above calculation, even with a 9.6 per cent GDP growth, the size of the economy in 2021-22 will only be Rs 147.17 lakh crore. "To achieve Rs 160.59 lakh crore size, it will require a GDP growth of 19.5 per cent in FY22.".