Summary of the Economic Survey 2021-22
Radiance News Service
AS PER WORLD BANK,
ADB, AND IMF PROJECTIONS, INDIA TO REMAIN THE FASTEST-GROWING MAJOR ECONOMY IN
THE WORLD DURING 2021-24
INDIAN ECONOMY TO GROW BY 9.2% IN REAL TERMS IN 2021-22
AGRICULTURE TO GROW BY 3.9 % IN 2021-22 IN COMPARISON TO 3.6% IN THE PREVIOUS
YEAR
INDUSTRIAL SECTOR TO WITNESS SHARP REBOUND FROM A CONTRACTION OF 7% IN 2020-21
TO EXPANSION OF 11.8% IN 2021-22
SERVICES TO CLOCK 8.2% GROWTH IN 2021-22 AFTER A CONTRACTION OF 8.4% LAST YEAR
FOREIGN EXCHANGE RESERVES STOOD AT US$ 634 BILLION AS OF 31ST DECEMBER 2021
EQUIVALENT TO OVER 13 MONTHS OF IMPORTS AND HIGHER THAN THE COUNTRY’S EXTERNAL DEBT
INVESTMENT IS EXPECTED TO SEE A STRONG GROWTH OF 15% IN 2021-22
CONSUMER PRICE INDEX (CPI) COMBINED INFLATION OF 5.6% IN DECEMBER 2021 IS WELL
WITHIN THE TARGETED TOLERANCE BAND
THE FISCAL DEFICIT FOR APRIL-NOVEMBER 2021 CONTAINED AT 46.2% OF BUDGET ESTIMATES
CAPITAL MARKET BOOMS DESPITE PANDEMIC; OVER RS 89 THOUSAND CRORE RAISED VIA 75
IPO ISSUES IN APRIL-NOVEMBER 2021, MUCH HIGHER THAN IN ANY YEAR IN THE LAST
DECADE
MACRO-ECONOMIC STABILITY INDICATORS SUGGEST INDIAN ECONOMY WELL PL
India to
witness GDP growth of 8.0-8.5 per cent in 2022-23, supported by widespread
vaccine coverage, gains from supply-side reforms and easing of regulations,
robust export growth, and availability of fiscal space to ramp up capital
spending.
The Union Minister for Finance & Corporate Affairs Smt Nirmala Sitharaman tabled the Economic Survey 2021-22 in Parliament today, which states that the year ahead is well poised for a pick-up in private sector investment with the financial system in a good position to provide support to the revival of economy. The growth projection for 2022-23 is based on the assumption that there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the range of US$70-$75/bbl, and global supply chain disruptions will steadily ease over the course of the year.
The Survey says, the above projection is comparable with the World Bank’s and Asian Development Bank’s latest forecasts of real GDP growth of 8.7 per cent and 7.5 per cent respectively for 2022-23. As per the IMF’s latest World Economic Outlook (WEO) growth projections released on 25th January 2022, India’s real GDP is projected to grow at 9 per cent in both 2021-22 and 2022-23 and at 7.1 per cent in 2023-24. This projects India as the fastest-growing major economy in the world in all these three years.
Referring to First Advance Estimates, the Survey states that the Indian economy is estimated to grow by 9.2 per cent in real terms in 2021-22, after a contraction of 7.3 per cent in 2020-21. This implies that overall economic activity has recovered past the pre-pandemic levels. Almost all indicators show that the economic impact of the “second wave” in Q1 was much smaller than that experienced during the full lockdown phase in 2020-21, even though the health impact was more severe.
Dwelling on the sectoral aspects, the Survey states that Agriculture and allied sectors have been the least impacted by the pandemic and the sector is expected to grow by 3.9 per cent in 2021-22 after growing by 3.6 per cent in the previous year. The area sown under Kharif and Rabi crops, and the production of wheat and rice has been steadily increasing over the years. In the current year, food grains production for the Kharif season is estimated to post a record level of 150.5 million tonnes. Moreover, procurement of food grains under the central pool accordingly maintained its rising trend in 2021-22 along with minimum support prices, which augur well for national food security and farmers’ incomes. Importantly, the strong performance of the sector was supported by Government policies that ensured timely supplies of seed and fertilizers despite pandemic-related disruptions. It was helped by good monsoon rains as reflected in reservoir levels being higher than the 10-year average.
According to
Survey, the industrial sector went through a sharp rebound from a
contraction of 7 per cent in 2020-21 to an expansion of 11.8 per cent in
this financial year. The manufacturing, construction, and mining sub-sectors
went through the same swing although the utility segment experienced a more
muted cycle as basic services such as electricity and water supply were
maintained even at the height of the national lockdown. The share of industry
in GVA is now estimated at 28.2 per cent.
The Survey
states that the services sector has been the hardest hit by the pandemic,
especially segments that involve human contact. This sector is estimated
to grow by 8.2 per cent this financial year following last year’s 8.4 per cent
contraction. It should be noted that there is a wide dispersion of performance
by different sub-sectors. Both the finance /Real Estate and the Public
Administration segments are now well above pre-COVID levels. However, segments
like Travel, Trade and hotels are yet to fully recover. There has been a boom
in software and IT-enabled services exports even as earnings from tourism have
declined sharply.
The Survey
added that total consumption is estimated to have grown by 7.0 per cent in
2021-22 with government consumption remaining the biggest contributor as in the
previous year. Government consumption is estimated to grow by a strong 7.6 per
cent surpassing pre-pandemic levels. Private consumption is also estimated to
have improved significantly to recover 97 per cent of corresponding
pre-pandemic output level and it is poised to see stronger recovery with rapid
coverage in vaccination and faster normalization of economic activity.
According to
the Survey, Investment, as measured by Gross Fixed Capital Formation (GFCF) is
expected to see strong growth of 15 per cent in 2021-22 and achieve full
recovery of pre-pandemic level. Government’s policy thrust on quickening
virtuous cycle of growth via capex and infrastructure spending has increased
capital formation in the economy lifting the investment of GDP ratio to about
29.6 per cent in 2021-22, the highest in seven years. While private investment
recovery is still at a nascent stage, there are many signals which indicate
that India is poised for stronger investment. A sturdy and cleaned-up banking
sector stands ready to support private investment adequately.
On the
Exports and Imports front, the Survey states that India’s exports of both goods
and services have been exceptionally strong so far in 2021-22. Merchandise
exports have been above US$30 billion for eight consecutive months in 2021-22,
despite many pandemic related global supply constraints. Net services exports
have also risen sharply, driven by professional and management consulting
services, audio visual and related services, freight transport services,
telecommunications, computer and information services. From a demand
perspective, India’s total exports are expected to grow by 16.5 per cent in
2021-22 surpassing pre-pandemic levels. Imports also recovered strongly with
revival of domestic demand and continuous rise in price of imported crude and
metals. Imports are expected to grow by 29.4 per cent in 2021-22 surpassing
corresponding pre-pandemic levels. Resultantly, India’s net exports have turned
negative in the first half of 2021-22, compared to a surplus in the
corresponding period of 2020-21. But current account deficit is expected to
remain within manageable limits.
Further, the Survey points out that despite all the disruptions caused by the global pandemic, India’s balance of payments remained in surplus throughout the last two years. This allowed the Reserve Bank of India to keep accumulating foreign exchange reserves, which stand at US$634 billion on 31st December 2021. This is equivalent to 13.2 months of imports and higher than the country’s external debt.
The Survey
notes that inflation has reappeared as a global issue in both advanced and
emerging economies. The surge in energy prices, non-food commodities, input
prices, disruption of global supply chains, and rising freight costs stoked
global inflation during the year. In India, Consumer Price Index (CPI)
inflation moderated to 5.2 per cent in 2021-22 (April-December) from 6.6 per
cent in the corresponding period of 2020-21. It was 5.6 per cent (YoY) in
December 2021, which is within the targeted tolerance band. The decline in
retail inflation in 2021-22 was led by easing of food inflation. Wholesale
Price Inflation (WPI), however, has been running in double-digits.
The Survey
says that fiscal support given to the economy as well as the health response
caused the fiscal deficit and government debt to rise in 2020-21. However,
there has been a strong rebound in government revenues in 2021-22 so far. The
revenue receipts of the central government during April-November 2021 have gone
up by 67.2 per cent (YOY), as against an expected growth of 9.6 per cent in the
2021-22 Budget Estimates over provisional actuals. The tax collections have
been buoyant for both direct and indirect taxes and the gross monthly GST
collections have crossed Rs 1 lakh crore consistently since July 2021.
It adds that on the account of a sustained revenue collection and a targeted expenditure policy by the Government of India, the fiscal deficit for April-November 2021 has been contained at 46.2 per cent of Budget Estimates (BE) which is nearly one third of the proportion reached during the same period of the previous two years (135.1% of BE in April-November 2020 and 114.8% of BE in April-November 2019).
The Survey
points out that the financial sector is always a possible area of stress during
turbulent times. However, India’s capital markets have done exceptionally well
and have allowed record mobilization of risk capital of Indian companies. The
Sensex and Nifty scaled up to touch its peak at 61,766 and 18,477 on October
18, 2021. Rs 89,066 crore was raised via 75 IPO issues in April- November 2021,
much higher than in any year in the last decade. Moreover, the banking system
is well capitalized and NPAs seems to have structurally declined. The Gross
Non-Performing Advances (GNPA) ratio (i.e. GNPAs as a percentage of Gross
Advances) and Net Non-Performing Advances (NNPA) ratio of Scheduled Commercial
banks (SCBs) continued to decline since 2018-19. GNPA ratio of SCBs decreased
from 7.5 per cent at end-September 2020 to 6.9 per cent at end-September 2021.
The Survey
expresses that another distinguishing feature of India’s economic response has
been an emphasis on supply-side reforms rather than a total reliance on demand
management. These supply-side reforms include deregulation of numerous sectors,
simplification of processes, removal of legacy issues like ‘retrospective tax’,
privatization, production-linked incentives and so on. Even the sharp increase
in capital spending by the Government can be seen as both demand and supply
response as it creates infrastructure capacity for future growth.
There are two
common themes in India’s supply-side strategy: (i) Reforms that improve
flexibility and innovation in order to deal with the long-term unpredictability
of the post-Covid world. This includes factor market reforms; deregulation of
sectors like space, drones, geospatial mapping, trade finance factoring; process
reforms like those in government procurement and in telecommunications sector;
removal of legacy issues like retrospective tax; privatization and
monetization, creation of physical infrastructure, and so on. (ii) Reforms
aimed at improving the resilience o the Indian economy. These range from
climate/environment related policies; social infrastructure such as public
provision of tap water, toilets, basic housing, insurance for the poor, and so
on; support for key industries under Atmanirbhar Bharat; a strong emphasis on
reciprocity in foreign trade agreements, and so on.
An important
theme that has been discussed through the course of the Economic Survey is that
of ‘process reforms’. It is important to distinguish between deregulation and
process reforms. The former relates to reducing or removing the role of
government from a particular activity. In contrast, the latter broadly relates
to simplification and smoothening of the process for activities where the
government’s presence as a facilitator or regulator is necessary.
The Survey
points out that the last two years have been difficult for the world economy on
account of the COVID-19 pandemic. Repeated waves of infection, supply-chain
disruptions and more recently, global inflation has created particularly
challenging times for policy-making. Faced with these challenges, the
Government of India opted for a ‘ Barbell Strategy” that combined a bouquet of
safety-nets to cushion the impact on vulnerable sections of society and the
business sector. It next pushed through a significant increase in capital
expenditure on infrastructure to build back medium-term demand as well as
aggressively implemented supply-side measures to prepare the economy for sustained long-term expansion. This flexible and multi-layered approach is
partly based on an “Agile” framework that used feedback-loops, and the
monitoring of real-time data.
The Survey
underlines that Monetary policy since the outbreak of the pandemic was
calibrated to provide a cushion and support growth, but carefully controlled in
order to avoid the medium-term dislocations of excess liquidity. An important
aspect of the safety net was the use of Government guarantees to provide access
to financial support to the economy in general and MSMEs in particular. In the
last two years, government leveraged an array of eighty High-Frequency
Indicators (HFIs) representing industry, services, global trends,
macro-stability indicators, and several other activities, from both public and
private sources to gauge the underlying state of the economy on a real-time
basis. These HFIs helped policy makers tailor their response to an evolving
situation rather than rely on pre-defined responses of a Waterfall framework,
which has been the conventional method for framing policy in India and most of
the world.
In
conclusion, the Survey is quite optimistic that overall macro-economic
stability indicators suggest that the Indian Economy is well placed to take on
the challenges of 2022-23 and one of the reasons that the Indian Economy is in a good position is its unique response strategy.