“Alongside the planned government spending boost in Q1 and receding Covid-19 risks, the shift in the monetary policy outlook supports our 2021 growth upgrade to 10.2 per cent from 8.8 per cent earlier,” Oxford Economics said.
The forecasting firm also noted that India’s latest Union Budget has raised hopes that fiscal policy will finally pick up the growth baton and ease pressure on the RBI to continue to lead the pandemic policy response. “We think the budget proposals will create positive externalities for the private sector, and forecast slower fiscal consolidation in FY2022 than the government projects.
“A proposed increase in capital expenditure should also lower the contractionary impact of the consolidation on GDP,” it said. Oxford Economics noted that if inflation risks materialise, the RBI may have to renege on its growth commitment, which is a downside risk to its growth forecast.
It said the Budget has been largely perceived as supporting growth, despite a projected narrowing of the fiscal deficit from 9.5 per cent of GDP in fiscal 2020-21 (ending March 2021) to 6.8 per cent in 2021-22. “In all, we do see merit in the view that the budget is growth-oriented and expect the positive spillover impact on the private sector to help nurture the ongoing recovery,” it said.
The Economic Survey has projected an 11 per cent growth for 2021-22, aided by a V-shaped recovery and a 7.7 per cent contraction for the current year. It also projects a lower 6.8 per cent growth in 2022-23. The Reserve Bank of India has projected a GDP growth rate of 10.5 per cent for the financial year beginning April 1, on the back of recovery in economic activities.