- India’s GDP in 2020-21 is expected to be higher than currently projected by various agencies, with the economy poised to recover fast and reach pre-COVID-19 levels by the end of the year, the Finance Ministry said on Wednesday.
- Barring the risk of a second wave of COVID-19 infections in the country, the improvement in GDP performance would widen the fiscal headroom available for the government to pursue other priorities in spending, the ministry said in its monthly economic report for October.
- “India stands poised to recover at a fast pace and reach pre-COVID-19 levels by the end of the year — barring the incidence of a second wave that may be triggered by the fatigue with social distancing,” the ministry said.
- “The continuous improvement in forward looking RBI indices of consumption and business sentiment for the next year augurs hope of a strong economic rebound,” it added.
- The Reserve Bank of India (RBI) has estimated that India’s GDP will contract by 9.5% this year, while the International Monetary Fund and World Bank have forecast a contraction of 10.3% and 9.6%, respectively.
- Given that there are indications of India’s GDP groperformance “in the current year being higher than currently projected by various agencies, fiscal space is set to widen to accommodate other priorities of the government,” the ministry said.
Rise in GST collections
- The rise in Goods and Services Tax (GST) collections to more than ₹1 lakh crore in October for the first time since February is evidence that the fiscal space would improve, it added.
- The constriction of fiscal space is neither unique to India, nor does it make the country’s public finances any more vulnerable than other nations, the ministry stressed, pointing to the additional spending the government undertook to alleviate the impact of the pandemic on the vulnerable sections of society as well as its measures to boost consumption spending.
- “The fiscal space is also characterised by recent measures announced to lend to States for increasing capital expenditure, providing them assistance under SDRF and borrowing on their behalf to meet GST revenue shortfall,” the Finance Ministry said in the report.