The Budget session of the Parliament opened with the presentation of the Economic Survey 2021 on January 29. Typically, the economic survey is presented a day before the union budget. However, this year, it is brought earlier than usual because the day before the budget is Sunday.
The current year’s survey has a much higher significance considering the unprecedented manner in which 2020 played out. The Indian economy has been in a greatly mutable state all through 2020 and 2021, from hitting a multi-decade GDP tough in quarter one to making a noticeable recovery in the next quarter (1).
Moreover, the havoc wreaked because of the pandemic, pointers related to all significant economic indicators are in sharp focus of the Economic survey 2021 presentation.
“Economic Survey 2020-21 is an ardent tribute to the immortal human spirit of grit and compassion in #savinglives&livelihoods demonstrated by our coronavirus warriors. It recognized the integral role of effective policymaking in charting the path to economic growth and social development. The V-shaped economic recovery while avoiding the second wave of infections makes India a sui generis case in strategic policymaking, of being fearless to choose the road less traveled by; for in the end, that makes all the difference. The survey makes a case for continued focus on economic growth ably supported by effective policymaking.”
– K. V. Subramanian, the architect of the Economic Survey 2021 (2).
The survey has forecast that India’s economy would contract 7.7% in 2020-21 before observing a sharp 10 to 12% recovery in 2021-2022. There are expectations that the economy grows its trend growth rate of 6.5% in 2022-23 and 7% in 2023-24, supported by structural reforms.
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The Presentation
Finance Minister Nirmala Sitharaman tabled the Economic Survey of India to the Parliament. The Chief Economic Advisor Krishnamurthy Subramanian (3) and his team authored the document tracking the progress of the Indian economy.
Notably, K V Subramanian assumed his post as CE in 2018 for three years, succeeding Arvin Subramanian. He is an executive director and associate finance professor for the Centre for Analytics Finance at India’s premier business school, ISB, Indian School of Business, Hyderabad.
Subramanian holds a Ph.D. from Chicago-Booth and is a top-ranking IIT-IIM alumnus. He has also served on numerous expert committees such as the PJ Nayak Committee on banks’ governance for RBI and SEBI’s the Uday Kotak Corporate Governance Committee (4).
On the morning of the Economic Survey, the Indian economy had 4.59% inflation in December, -1.9 IIP in November, -2.6 core sector, 584 billion USD forex reserves, and 135% of the financial year 2021 target for April to November fiscal deficit.
Notably, the economic data is the least talked about subject amid the pandemic. Our time-test methods to interpret and understand statistics have made little to no sense after what we witnessed last year. For instance, an eight to ten percent Indian GDP growth for the first quarter of the upcoming fiscal year would have been a matter of jubilation in the normal scenario. However, that’s not the case anymore.
“The usual methods we use to collect macro data has become redundant during a turbulence of this magnitude.”
– Arvind Virmani, the former Chief Economic Adviser, Government of India (5).
It is also worth highlighting that the budget this year is going to be paperless. All the documents and the Economic Survey 2021 are made available online once the authenticated copies were laid on the Lok Sabha house table, stated the Secretariat.
India’s Reliance on Macro Numbers
According to NVS Reddy, the managing director of Hyderabad Metro Rail Ltd. (6), the company has been going through macroeconomic numbers. There is also a need to look at non-economic numbers such as passengers’ behavioral patterns and work-from-home trends for such business.
Even though Hyderabad Metro had resumed operations over three months ago, it is still only carrying one-third of its usual passenger numbers. The company is presently looking at other revenue sources like real estate and advertisements to increase its finances.
Moreover, Indian Inc is also unlikely to embark on investment drives and expansion until they can get reliable macroeconomic numbers. Corporate India usually relies on macroeconomic numbers before making any operational or key investment decisions and has realized that it can no longer depend on data they are familiar with.
Even though India’s economy has slipped into the red zone at least four times after independence, the situation is still unprecedented for the organization.
It is also worth highlighting that the Indian economy was massively dependent on agriculture, with limited participation of the private sector in the economy during the old days. One bad monsoon was enough to slide off the numbers. Today, the private sector is among the big drivers of Indian economic growth.
Here are some ways one can read the numbers:
- The next financial year’s quarterly GDP growth rate would be based on the current year’s depleted levels. Hence, they would have little value.
- Economists are focusing more on important data to forecast the domestic economy’s health.
- IIP numbers’ sub-sectoral details are considered relevant.
- Entities are specifying monthly targets based on Pre-COVID realization.
- Non-economic data like work-from-home trends are gaining.
Economic Survey 2021: The Bounce Back
After an unabated market selloff that stretched to five consecutive trading sessions, benchmark averages bounced since buying in auto, and other financials took it higher ahead of the Economic Survey and the Union Budget.
Selling by foreign investors checked the gain. Notably, they are the ones who have supported the huge rally for the past ten months.
“Today commences the first session of the decade. It is essential for the bright future of India. A golden opportunity has come before the country to fulfill the dreams of our freedom fighters.”
– Narendra Modi, Prime Minister of India, ANI (7).
It is also worth highlighting that India is the only major economy with a forecast to grow in double digits in the upcoming year. It also has the forecast to follow that up with the most significant rise of 6.8% in the financial year 2023.
There are expectations that the Indian economy would recover robustly in the next financial year with 11.5% growth. According to the International Monetary Fund, the globe would witness a sharp recovery in 2021 after the pandemic’s devastation (8).
Moreover, India is also expecting a significant boost to housing activity from policies in the union budget. According to the Managing Director of Colliers International, Ajay Sharma (9), the market expects a relief for second homeowners, tax concessions promotion for new home buyers, and concessions for promoters and builders. It would give sector industry status and access to loan reclassification extensions and cheaper capital.
The country’s resilience and a quick turnaround post the unlock has given the biggest boost for buyers to enter the residential market with more long-term confidence in its economic recovery, stated Rohan Sharma, head of research, Cushman Wakefield (10).
Indian Economy’s Stock
The President of India, Ram Nath Kovind, takes stock of the economy during his customary address to the joint sitting of Parliament. Notably, the presidential speech marks the start of the Budget session.
He marked that India has started emerging from the economic setback amid the pandemic. Apart from this, he also made several outlines in his speech (11).
Public Transportation
The government is currently working on expanding the metro services to more than 27 cities across India. There is also a driverless metro on the route of Delhi metro. With the construction of Regional Rapid Transit Systems in cities, there are also improvements in public transport modes.
Small Entrepreneurs
The government’s efforts like the three lakh crore rupee Emergency Credit Guarantee Scheme, the twenty thousand crores special scheme for the struggling MSMEs, and the Funds of Funds have helped millions of small entrepreneurs.
Women Entrepreneurs
The Indian government has taken seizable steps to offer new employment opportunities to women in the country. So far, the government has given over 25 crore INR loans under the Mudra Scheme. Out of these, more than 75% of these loans are given to women entrepreneurs.
Micro-irrigation
In 2013, there were only 42 lakh hectares of land with the micro-irrigation facility. Today, India has over 56 lakh hectares of land connected with micro-irrigation.
Food Grains Production
Between the years 2008-2009, India had produced about 234 million tonnes of food grains. Now the nation’s yields expanded to 296 million tonnes in 2019-2020. Simultaneously, fruit and vegetable production has also increased from 215 million tonnes to 320 million tonnes.
Prime Minister Crop Insurance Scheme
Under the scheme, farmers have received over 90,000 crore INR in place of a premium of 17,000 crore INR in the past five years.
UPI Status
In December last year, more than 4 lakh crore INR digital payments were made through UPI. Today, over 200 banks of India are connected with the UPI system.
Gas-based Economy
Gas Connection to make the country Gas Based Economy. Notably, the Kochi-Mangalore gas pipeline has been recently launched, and there are also enhancements in the construction of the Dobhi-Durgapur gas pipeline, ‘Urja Ganga.’
It is worth highlighting that the Indian transport sector is among the worst-hit sectors in the crisis. Even though the sector’s revenue plunged, it still had high expenditure.
According to Vinayak Chatterjee, the Chairman of Feedback Infra, an infrastructure finance firm (12), there is an urgent requirement for a new index to understand the quarterly GDP growth. The percentage-based growth data we are now using has little value in the circumstances today.
He added that the period immediately before the COVID-19, the quarter four of 2019-2020, should be ideally benchmarked with a 100 index, and all subsequent quarters should be looked at compared to that. We can only talk about growth rate once the index is back to 100, GDP level equalizing to the quarter four of 2019-20.
The Five Trillion Economy
In September 2019, Narendra Modi had stated that the Indian economy would double in size to 5 trillion USD by 2022, and then it would grow more than 8% annually. The ambitious target was later put off until the year 2024 since it had become evident that the Indian GDP growth was slowing down (13).
There is a steady decline in quarterly GDP, gross domestic product trends since the last quarter of the financial year 2018, save for a 0.1% marginal sequential increase in quarter four of the financial year 2019 before continuing on dropping.
During the last quarter of the past financial year, the last time growth was in positive territory. Even though the lockdown impacted March’s tail-end, the Indian GDP sank to an 11-year low of 3.1%. It was followed by the massive 23.9% contraction in the June quarter of the on-going financial year. The first contraction of India’s economy in the past 40 years.
Annually, GDP growth under the present government peaked at the financial year 2017 at 8.3% before embarking on a continuous drop to 7% in the financial year 2018 and 6.1% in the financial year 2019, and 4.2% in 2020. It is the slowest growth rate till day under the present government’s administration.
The Present State of the Indian Economy
It is worth highlighting that agriculture was the only sector in India to register growth during the April to June period last year. During the second quarter, from July to September, while the Indian GDP was contracting 7.5%, the agriculture sector witnessed 3.4% growth.
The agriculture sector’s contribution in the previous financial year to the overall economic growth had surpassed the industrial sector. In its annual report Economic Review of 2019-2020 (14), published in August last year, RBI had noted that when the outlook for other sectors was gloomy, agriculture contributed about 15.2% to the overall economic growth, surpassing that of the industrial sector, about 4.7% for the first time since 2013-14.
There has also been growing anxiety over the rising unemployment in India. There are estimates that about 121 million jobs were lost during the lockdown, according to CMIE (15). India’s unemployment rate was increased to 23.5% in April, 21.73% in May before it cooled down to about 10% in June.
According to the data from PLFS, Periodic Labor Force Survey, urban employment in India from January to March quarter in 2020 stood at 9.1%. It was higher than 7.9% in the previous quarter.
There are estimates from almost all leading economic watchers that the Indian economy would shed the contraction mode. Most estimates also say that the rural economy would strengthen further with residential sales accelerated by 50% in quarter four compared to the previous quarter, as per a JLL report.
There are hopes that Nirmala Sitharaman’s plan would rely on generous public spending to spur activity. There are also bets that the Union Budget 2021 would focus on putting more money to the average taxpayer to boost consumption and easing rules to attract investment.
Read Also: Budget 2021: Top Insights for Still ‘Emerging’ India
Sneak Peek at the Economic Survey 2021
Here are the top highlights
Keep Up the Spending!
The survey has batted for a continued expansionary fiscal stance by the Indian government to ensure that the growth returns to pre-COVID levels. A recovery in growth would boost revenue and help the country to get back on a sustainable financial path (16).
Economy Passing Pre-COVID Lives in Two Years
The survey pointed out that a rebound in government economic activity and government reforms would help the economy go past its Pre-COVID level in the next two years. It is also possible for economic activities to normalize sooner than predictions because of the vaccine rollout.
Keeping Debt in Check with Higher Growth
The survey put an effort to reduce the doubts about the country’s debt levels. It stated that as long as India’s GDP is growing, it doesn’t need to worry about debt. The survey argued that from the past two and a half decades, higher GDP growth has caused a decline in the debt-to-GDP ratio in the case of India. However, it also added that the reverse is not true.
Asset Quality Review 2.0 for Net Banking
The survey suggested that India needs a new asset quality review of Indian banks as soon as the relief measures amid the pandemic are lifted. The author, K V Subramanian, called for a bank books’ clean up to ensure that there is no repetition of past mistakes.
Driving Policy Making with Core Inflation
The survey also suggested that India needs to focus on core inflation to drive policymaking. It added that the sole focus on inflation to set monetary policy may not be appropriate (17).
Supporting the Farm Laws
The Economic Survey 2021 is in support of the new farm laws. It stated that the new farm laws, which the farmer groups are widely opposing, would benefit small and marginal farms. It would also pave the way for Indian agriculture in a new free-market age (18).
Pointing at Over-regulation Problems
The Indian administration process is suffering from overregulation more than lack of regulatory standards and lack of compliance. The survey also noted that one of the roots of the case is that the government’s approach, attempting to account for every possible outcome (19).
Healthcare Regulator
The survey recommended setting up a sector regulator and a rating agency like body to assess the country’s healthcare providers’ quality. It would help tackle information asymmetries, stated the survey.
Bangladesh is Beating India at Exports
In the last decade, exports of Bangladesh have grown at 8.6% annually while our country is stuck at 0.9%. The outperformance happened because Bangladesh is exporting commodities where it has a competitive advantage.
India Needs to Stop Relying on ‘Jugaad’
The economic Survey 2021 made a case for higher research and development spending by the private sector to kick off India’s innovation. India needs to stop relying on ‘jugaad innovation’ since there are risks of missing the crucial opportunity to innovate our way into the future (20).
The Way Forward for the Indian Government
- The Indian economy is observing a v-shaped recovery.
- While India is among the top 50 innovating countries for the first time in 2020, its gross domestic expenditure on R&D is lowest among the other largest economies.
- The three agricultural reforms are designed and intended primarily for the benefit of marginal and small farmers.
- Considering the impact of COVID-19, India’s real GDP contracts 7.7% in the current fiscal year.
- India’s real GDP could grow at 11%, while nominal GDP may rise by 15.4% in the upcoming fiscal year.
- The economic survey is calling for countercyclical fiscal policy to boost growth during the economic crisis.
- While forbearance has previously helped borrowers to tide over temporary hardships. However, it must be done away with.
- The survey also calls for a clean bank’s balance sheet via ARQ.
- It also encourages the government to ignore ratings and act freely.
- The Economic Survey 2021 suggests that the government needs to lift the nation’s poor via growth and not redistribution.
- Healthcare should be the top priority for the country.
- India needs to boost its productivity via R&D, and its jugaad won’t help it beat China.
- The survey also suggests setting up an independent tax ombudsman to ensure enforcement of taxpayer’s rights.
