Augmenting growth

According to earlier advance estimates, the Gross Domestic Product (GDP) growth rate in FY 2021 is expected to be negative at 7.7 per cent as against 4.2 per cent in the same period of FY 2020. However, nominal GDP is estimated to be 4.2 per cent negative in FY 2021, while it was 7.2 per cent in FY 2020.

It is worth noting that the standards of real GDP and nominal GDP calculations are different. GDP is calculated as the value of all final goods and services produced within a country's border in a fiscal year. It also includes foreign production that is within the country's borders, while Indians who produce abroad are not considered in GDP. Apart from this, the nominal GDP is calculated as the price of goods and services produced in a year at the market price.

In the first half of FY 2021, the loss in nominal GDP has been Rs 13.1 lakh crore, while the loss in real GDP has been Rs 8.6 lakh crore. In the second half, nominal GDP is estimated at Rs 4.5 lakh crore, as nominal GDP is expected to grow positively in the third and fourth quarters. However, GDP growth is expected to be negative in the second half due to inflation.

The economy was supported by the agriculture sector in the pandemic period. This was the area in which the wheel of development continued to spin during the lockdown. Agriculture and allied sectors are projected to grow at a rate of 3.4 per cent in FY 2021, while in FY 2020 the sector grew at a rate of four per cent. The industrial sector is projected to grow at a negative rate of 9.6 per cent in FY 2021, while the sector grew at 0.9 per cent in FY 2020.

The service sector is projected to grow at a negative rate of 8.8 per cent in FY 2021, while the sector grew at a rate of 5.5 per cent in FY 2020. The service sector's subdivisions – hotel, transport, communication etc., are projected to have negative growth of 21.4 per cent in FY 2021, whereas it was 3.6 per cent in FY 2020.

Excluding government spending, there has been a decrease in spending in all areas. Personal spending has decreased by 5.6 per cent on a nominal basis, while in real terms, it has decreased by 10 per cent. There has also been a decrease in exports, which is slightly lower than imports.

According to an estimate, in FY 2021, the revenue collection of the Central Government may decrease by Rs 3.8 lakh crore, while the expenditure may be more than Rs 4 lakh crore. Due to this, the fiscal deficit is estimated at Rs 15.8 lakh crore, which will be 7.8 per cent of the revised nominal GDP. In FY 2022, nominal GDP is projected to increase at a rate of 15 per cent. If this happens, the fiscal deficit could be Rs 12.2 lakh crore, which would be 5.4 per cent of GDP. At the same time, the overall borrowing of the Central Government is estimated to be around Rs 11.9 lakh crore in FY 2022. At the same time, the borrowings of the states can be 8.7 lakh crore rupees. Adding to the borrowings of the Central and state governments together, the total borrowing could be Rs 20.6 lakh crore.

Government spending in November 2020 stood at 62.7 per cent of the budgetary estimate. Interest payments were higher this month. With the increase in spending, the fiscal deficit has reached 135 per cent of the budgetary estimate. One important reason for this is the decrease in revenue collection. Corporate tax collection was just 27 per cent of the budgetary estimate, while income tax was 37 per cent of the budgetary estimate. The Goods and Services Tax (GST) collection has also been less than the budget estimate of Rs 6.9 lakh crore. According to an estimate, the GST collection of the Central Government may be less than Rs 1.44 lakh crore from the budgeted estimate for FY 2021. However, excise duty is 74 per cent of the budgetary estimate, giving the Government some relief on the revenue collection front.

If the Central Government gives 50 per cent of the collected IGST to the states, the deficit in GST collection of the states will be reduced to Rs 25,000 crore. Available data shows that from April to December 2020, the states received only 31 per cent of the allocated IGST. Due to the decrease in revenue collection, states in the pandemic period have taken 41.5 per cent more borrowings than last year.

In view of rising inflation, policy rates may be cut in the monetary review to be held in February. However, in this context, various provisions to be made in the budget on February 1 will also be taken care of. In the last year, in the light of the corrective steps taken by the Government and the Reserve Bank of India, an attempt has been made to keep the interest rates viable, which did not reduce the demand for credit.

The global economy is also going through a severe crisis due to the pandemic. Statistics show that this is the fourth major global recession in 150 years. Although the global economy may grow at a rate of four per cent in FY 2021, it may come down to around 3.8 per cent in FY 2022.

With the continuous improvement in all parameters, the economy is back on track, which is also confirmed by the improvement in the credit ratio of metals, steel, cement and finance sector by 20 bps or more. This also shows that now businessmen and common people are taking loans from the bank to meet their financial needs. It is also indicative of a spurt in demand and supply. Besides, the GST collection is expected to increase further. There is also an improvement in consumption of electricity, petrol etc. Coronavirus vaccination started on January 16 across the country. Thereafter, the fear of the Coronavirus will fade away from the minds of the common people and businessmen, and economic activities will increase further. Owing to this, GDP growth will also be augmented.

The writer is the Chief Manager in the Department of Economic Research at the Corporate Centre of State Bank of India, Mumbai. Views expressed are personal