Talking Point: ‘Green shoots are mechanical rebound, don’t read much into it’

Indian economy was in a troubled state when the pandemic hit the world. Before the Covid-19 crisis hit India, the real GDP growth had moderated from 7 per cent in 2017- 18 to 6.1 per cent in 2018-19 and to 4.2 per cent in 2019-20.

 “I don’t believe we should read too much into the green shoots that you refer to. What we’ve been seeing is just a mechanical rebound from the depressed base of the lockdown; it will be misleading to see it as a signal of a durable recovery,” Subbarao said. He said the “shortterm as well as medium-term prospects (for Indian economy) continue to be grim”.

 “The pandemic is still spiralling, the number of daily cases is rising and it is spreading to newer regions,” he added.

 On India’s medium-term growth prospect, the former RBI governor said that the economy was in a troubled state when the Covid-19 crisis hit India. “When the crisis is behind us and I hope that is soon enough these problems are going to be much bigger. Fiscal deficit is going to be much higher, the debt burden much larger and the financial sector in a worse shape,” he said.

 The World Bank last week projected India’s fiscal deficit to rise to 6.6 per cent of GDP in 2020-21 (April 2020 to March 2021) and remain elevated at 5.5 per cent in the following year. This compares to the 3.5 per cent target set by the government.

 “Our medium-term prospects will depend on how effectively we resolve these challenges,” Subbarao said.