The think tank pared its forecast of gross domestic product (GDP) growth during the ongoing fiscal to -7.3% compared to -12.6% in September to account for the “welcome surprise” of a sharp moderation in contraction in the second quarter at -7.5%, according to its mid-year review of the economy, presented virtually on Monday.
However, a flattening in the pace of growth of several economic indicators in the December quarter have called into question the sustainability of the recovery, according to the NCAER.
Indicators across industry and services like the goods and services tax (GST) collections, GST e-way bills, Index of Industrial Production and Purchasing Managers’ Index have moderated the pace of recovery after the September-October uptick, said Bornali Bhandari, senior fellow, NCAER.
While the think tank saw headline inflation declining to 6.6% in December, from 6.93% last month, it projected inflation to stay elevated at 6.7% for the fiscal, over the Reserve Bank of India’s target band.
The NCAER projected the combined fiscal deficit of the Centre and states at 14.2% of GDP to account for the added borrowing of the Centre and states along with a shrinking GDP.
In terms of policy prescription, the think tank pushed for financial sector reforms on priority followed by addressing issues with the power sector and focus on foreign trade.
“You will need to give a strong positive shock through wide-ranging reforms in the financial sector, in the power sector, which lies behind part of the crisis in the financial sector, and in foreign trade where we have been stepping back in recent years,” said Sudipto Mundle, distinguished fellow, NCAER.