Must be cautious about FY22 growth predictions: Kaushik Das, Deutsche Bank

You have to look at the sequential momentum from January-March, how much we have slowed down in April-June and how fast we can recover over the next two-three quarters. We have to be cautious about any prediction as far as growth is concerned, said Kaushik Das, Director and Chief Economist, Deutsche Bank Research on ET Now's India Development Debate. Edited excerpts:

Uday Kotak recently said it is time for help from the government, asking if not now then when. How are we approaching the situation? Are we waiting for cases to continue to reduce and ease restrictions, and that same pent-up demand which was leading to a V-shaped recovery will recur in the next few weeks or maybe months? Is that our plan of action right now and can we really afford to wait for that scenario?
It is a very fluid situation at this point of time. If you look at the mathematical predictions made by the IIT scientist Dr Vidyasagar, they are saying that by the end of June we should expect the new cases to come down to as low as 15,000 from just above 2,00,000 that we have today. Maybe 15,000 is a very low number, but if it comes down below 15,000 by the end of June as per their predictions, that will turn into a positive sentiment.


You could give a sigh of relief that at least the worst of the second wave is behind us, but we know for a fact that the different states which have imposed lockdowns are probably going to continue till June and some may continue till July. The states which were the last to announce lockdowns like West Bengal could continue till July as well. This is definitely going to spill over into July-September quarter as well, it is not just going to get restricted to April-June because a lot of damage has been done.

When we talk about growth, there is a mechanical element that we are getting in FY22 just because of the low base effect of last year. If you add minus 8% decline last year getting 10-10.5% growth on the back of that is not a big deal. Actually, it is a very disappointing number. You have to think in terms of opportunity cost. If we did not have this vicious second wave, maybe India could have grown at 12%, 13%, 14% year on year instead of the 10% or 10.5% and even lower numbers that people are talking about. My point is that on a mechanical basis, just because the last year was so low and if you look at all the year-on-year growth figures that we are getting for different macro indicators, those numbers are still pretty robust. In fact, they could have been stronger if not for the second wave.

But that is not the way to look at what is happening currently in the Indian economy. You have to look at the sequential momentum from January-March, how much we have slowed down in April-June and how fast we can recover over the next two-three quarters. So, we have to be cautious about any prediction as far as growth is concerned.

RBI has already been proactive and taken steps on 5th May to ensure that the small and medium sector is protected to some extent. They will announce more policies I am sure on 4th June when they meet next. The government is probably already looking through different ways that they can support the economy, but the fiscal deficit is already stretched at 6.8% of GDP. Market borrowings are already high, so they will have to think about whether they can balance this need for supporting growth. They need to do that, but can they have savings from somewhere else so that your overall fiscal deficit does not go up too much. In that regard, RBI giving an extra dividend that people were not expecting of another Rs 500 billion is pretty helpful at this point of time.

Where does that put us in terms of being able to minimise the economic impact? We have not yet seen the totality of what is happening in quarter one of this fisc. It is definitely going to hurt in many ways which are to pan out. What is the clear path forward?
This is almost impossible to answer. I mean in economics there is a complicated field called chaos theory which says that a few small changes in initial starting points can have a completely different path. The best example of chaos theory was discussed in the movie Jurassic Park, if you go back and watch that movie. So, the bottom line is that we do not know exactly how this path will play out over the next 9 to 12 months. There is a lot of uncertainty and we could definitely have a third wave.

Normally, the third wave or any gap between the first and second or second and third wave is normally six to eight months; it is about 32 to 35 weeks. So, if you calculate from the end of June or early July, the third wave should hit you sometime around January-March of next year. Basically, as economies what we can do is probably take a conservative growth forecast thinking that this is not going to be a straight line of recovery. For six months you will have to go through intense pain and then you will probably see three-four months of some relief.

Then depending on how people behave, we have to keep on learning from our mistakes – the mistakes that we have made in the second wave from general not fulfilling the COVID-19 protocols. The government cannot do everything, you cannot just go and try to stop people or punish them. That is not how the thing will work. So, people will have to decide for themselves if they value their lives or the lives of their near and dear ones. They have to maintain those protocols and then you can have a probably much shallower third wave.

By that time, in the next six months we have a very narrow window. If we can get at least 35-40% of the population vaccinated with the first dose or second dose to whatever extent, we can maybe start boosting the vaccination drive in July and August. Then we should be in a relatively better position, but you have to continuously worry about this thing. When a large part of the population has been vaccinated, we can sigh a heave of relief; that we can get back to some kind of normalcy.