The Indian economy is set to expand 11 per cent in the next fiscal 2021-22 after a contraction of 7.7 per cent in the current fiscal on the back of a vaccination drive and robust consumer demand, according to the Economic Survey for 2020-21 tabled in Parliament on Friday. However, it will take at least two years before the economy returns to the pre-pandemic growth path.

The Survey says the contraction in the Indian economy this year will be the fourth since 1960-61. “The contraction in 1965-66 and 1971-72 coincided with wars and droughts while the year 1979-80 was associated with a severe drought and political instability,” the report said.

The common thread in those years was a steep fall in agriculture output. However, that hasn’t happened this fiscal because of abundant monsoons, which means that the agriculture sector has emerged as a “silver lining for the economy”. The NSO has forecast farm sector growth of 3.4 per cent this year against 4 per cent in 2019-20.

The Survey said at the end of 2021-22, India’s real gross domestic product (GDP) in absolute terms would be 2.4 per cent -- better than what it was in 2019-20.

The Survey forecast a V-shaped economic recovery which was predicated on a robust recovery in the services sector, consumption and investment.

The projection of 11 per cent growth next fiscal over the smaller base this fiscal is in line with the IMF’s forecast of 11.5 per cent growth. India is expected to emerge as the fastest growing economy in the next two years according to the IMF, the Survey noted.

It also projected that in nominal terms, India’s GDP would expand 15.4 per cent in 2021-22, implying a retail inflation of 4.4 per cent. The nominal GDP assumption would be the highest since Independence.

Spending holds key

Aditi Nayar, principal economist, Icra, said: “The Survey’s forecasts of real and nominal GDP growth for 2021-22 of 11 per cent and 15.4 per cent, respectively, will require a substantial push from central and state spending.”

Private sector capacity expansion announcements are anticipated to be intermittent, and sector-specific in the next couple of quarters, she said.

“Moreover, private consumption is likely to chart a differentiated recovery across income and age groups.”