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As the race between the virus and the vaccine quickens, all eyes are on the Union Budget 2021-22 that the Finance Minister will present on February 1. How will the 2021-22 Budget vaccinate the Indian economy?
NCAER’s Mid-Year Review 2020-21 released on December 21 as part of its quarterly N-QRE (NCAER-Quarterly Review of the Economy) series forecast India’s GDP contracting by about (-) 7.3 percent in FY2020-21, an upgrade from forecasts earlier in the year. Views differ on whether the next fiscal year 2021-22 will see a strong cyclical upsurge and a sustained push to normalization, or whether what we are seeing is the “forced savings” of the better-off during the pandemic temporarily boosting demand, but likely to flatten out as some Q3 data have suggested. The ‘vaccine pivot’ will clearly help in either situation as private sector activity returns to pre-COVID levels and if central government spending continues its recent pick up. Overlaid on this will be the 15th Finance Commission recommendations that will start shaping the Centre-State fiscal space.
On Wednesday, January 27th, NCAER hosted a lively pre-Budget discussion featuring Sajjid Chinoy, JP Morgan’s Chief India Economist, Usha Thorat, former RBI Deputy Governor, Sonal Varma, Managing Director and Chief Economist for India at Nomura, and Sudipto Mundle, NCAER Distinguished Fellow. The discussion was moderated by NCAER Director General, Shekhar Shah. Over 120 participants attended this webinar.
The panelists reflected on difficult questions such as how should the Union Budget balance nudging the economy to good health and regaining growth momentum with ensuring medium-term fiscal sustainability? What fiscal impulses must the FM provide in her first post-COVID Budget to help India catch up with 2019-20 real GDP levels and simultaneously try to cut the headline deficit? How should the fiscal managers at the Centre and in State capitals manage expenditure priorities for reviving jobs and incomes, particularly for those at the bottom of the income pyramid, in informal jobs, and in MSMEs? How will the RBI support and lead the return to normalcy? What are the macroeconomic and structural reforms that India must undertake, starting now and over the next two to three years, to ensure that the economy catches up over the next four to five years with its pre-pandemic growth path? How might this recovery be best financed?
What will be the best vaccine for the Indian economy?