Two days ahead of Budget, the Economic Survey Friday pitched for an “expansionary fiscal policy” in 2021-22 to boost growth. It also advised the government to continue with structural reforms and significant privatisation of state-owned companies.
Tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha, the survey for 2020-21 emphasised that a stringent lockdown from March 25 to May 31 helped in breaking the chain of the pandemic’s spread and preventing loss of lives. The subsequent policy response helped in ensuring a V-shaped economic recovery, it said.
Calling for an expenditure push despite a fiscal slippage this year, the survey, authored by Chief Economic Advisor Krishnamurthy V Subramanian-led Economic Division, said, “… to sustain the recovery in aggregate demand, it is expected that the Government may have to continue with an expansionary fiscal stance…The calibrated approach adopted by India allows space for maintaining a fiscal impulse the coming year. The growth recovery would facilitate buoyant revenue collections in the medium term, and thereby enable a sustainable fiscal path.”.
After an estimated 7.7 per cent contraction in 2020-21, the Survey projects real GDP to record a 11 per cent growth in 2021-22. The nominal GDP growth has been estimated at 15.4 per cent, implying a 4.4 per cent inflation during the year.
The cover page of the twin-volume Economic Survey, showing “Covid warriors” joining hands to uphold India, has been devoted to all doctors, nurses, scientists, sanitation workers. It also captures the V-shaped recovery in the economy, reflecting its resilience. It has been delivered in an e-book format along with launch of a survey app.
The high 11 per cent growth rate estimated for 2021-22 is also partly because of the low base year effect, given the contraction projected for this fiscal. The Survey, however, describes the double-digit growth rate for the next year as “conservative estimates”, and that it reflects upside potential that can manifest due to the continued normalisation in economic activities as the rollout of Covid-19 vaccines gathers traction.
This will further be supported by supply-side push from reforms and easing of regulations, push to infrastructural investments, boost to manufacturing sector through the Productivity Linked Incentive Schemes, recovery of pent-up demand for services sector, increase in discretionary consumption subsequent to roll-out of the vaccine and pick up in credit given adequate liquidity and low interest rates.
These estimated levels of growth would require significant central government and state spending, as private sector investment is yet to pick up pace. What is significant is that this path would entail a growth in real GDP by 2.4 per cent over the absolute level of 2019-20 – implying that the economy would take two years to reach and go past the pre-pandemic level.
The Ministry’s projections are in line with IMF estimates of real GDP growth of 11.5 per cent in 2021-22 for India and 6.8 per cent in 2022-23. India is expected to emerge as the fastest growing economy in the next two years as per IMF (International Monetary Fund), the Survey said.
In a press briefing later Friday, Subramanian indicated the Budget will focus on stepping up spending to support growth. “Wait for Monday, I am sure you will see both Pujara and Pant in action,” he said in response to a query on whether stimulus being recommended will have characteristics of long-term sustainability of cricketer Cheteshwar Pujara and aggression of Rishabh Pant.
Noting that India’s policy response to the pandemic stemmed fundamentally from the humane principle advocated in the Mahabharata—“Saving a life that is in jeopardy is the origin of dharma” — the Survey said that India’s policy response valuing human life, even while paying the price of temporary GDP decline, has initiated the process of transformation where the short-term trade-off between lives and livelihoods is converted into a win-win in the medium to long- term that saves both lives and livelihoods.
“India imposed the most stringent lockdown at the very onset of the pandemic. This enabled flattening of the pandemic curve and, thereby, provided the necessary time to ramp up the health and testing infrastructure,” it said.
The Survey said the V-shaped economic recovery of GDP contraction of 7.5 per cent in Q2 as against 23.9 per cent contraction in Q1 correlates with the stringency of the lockdown, with the country reaping the “lockdown dividend”. “India is reaping the ‘lockdown dividend’ from the brave, preventive measures adopted at the onset of the pandemic…the ‘price’ paid for temporary economic restrictions in the form of temporary GDP decline is dwarfed by the ‘value’ placed on human life,” it said.
A privatisation push and review of the banking sector asset quality has been recommended in the survey. Divestment plans for the current year were impacted by the pandemic but the “focus of the government is to embark on a significant privatisation exercise of CPSEs and speeding up big-ticket strategic sale/ privatisation of large CPSEs such as Air India, BPCL, CONCOR and SCI,” the survey said.
Noting the stickiness of food inflation affecting headline retail inflation rate, the survey said “a greater focus on core inflation is warranted”. Core CPI inflation excludes the impact of food and fuel. “Core inflation has been viewed by many as the better measure of inflation for monetary policy purposes,” it said.
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