Strong pick up in growth unlikely; nominal growth likely 9.5-12% by FY26: Finance Commission

In the very pessimistic scenario, even at the end of the 5-year period, nominal growth would barely reach 9.5-10 percent, he said.

The exuberant scenario estimates real GDP growth around 8 percent levels, on a nominal growth of 12 percent .

“In the exuberant scenario, it (nominal growth) is designed to reach upto 12 percent, even if deflator creeps up, which means real growth of somewhere around 7.5-8 percent”, Singh said.

“In the somewhat optimistic scenario in the terminal year the growth rate may reach 10 and 11 percent which means with the deflator, the real growth rate could be 6.5 percent or so," he said.

The Finance Commission’s optimistic to exuberant growth scenarios, projecting real GDP growth rates of 6.5-7.5-8 percent levels at the end of the next five years, are not very different from what the finance ministry had been projecting in the previous two pre-COVID years.

For instance, pre-COVID, the Economic Survey for this FY had said, “On a net assessment of both the downside/upside risks, India’s GDP growth is expected to grow in the range of 6.0 to 6.5 percent in 2020-21.” For the current fiscal pre-COVID, the Finance Ministry made its budget assuming a 10 percent growth in nominal GDP.

And in FY20, again pre-COVID, nominal GDP growth shrank to 7.5 percent from 12 percent while real GDP growth shrank to 5 percent from 6.8 percent in FY19.

While the Economic Survey noted, “Given the macroeconomic situation and the structural reforms being undertaken by the government, the economy is projected to grow at 7 percent in 2019-20”

Given the past trend of a continuous contraction in real and nominal GDP, even without unprecedented factors like COVID, the Finance Commission’s latest growth simulations, must serve as a wakeup call to the government.