THE ECONOMIC SURVEY – GOVT GOES “V!”

The Economic Survey was tabled in the Parliament today afternoon.

This document is all about the past year and basically, gives us a synopsis of the year gone by. In a ‘normal’ year, this is not really like a go-to document but in the background of the pandemic, it was with great eagerness that all waited to see the year gone by, in economic terms. And there was also a lot of anxiety to see the outlook projected in the fiscal ahead. Needless to say, the year ahead looks great – we have a ‘V’ shaped recovery which is a sharp bounce back.

Well, the road map has been given and now all eyes on Monday, 1^st Feb to the answer to the question – how does the Govt propose to get us to 11% GDP in FY22?

Here are the highlights of the Economic Survey FY21:

• For FY21, survey projected GDP contraction of 7.7%
• For FY22, it projected a V-shaped recovery
• GDP for FY22 estimated to grow 11% and nominal GDP by 15.4%, based on a low base effect and inherent strengths of the economy.
• It is expected that the economy grows at its trend growth rate of 6.5% in FY23 and 7% in FY24 aided by structural reform
• The economy would take two years to reach and go past the pre-pandemic level
• Gross Value Added (GVA) growth is pegged at -7.2 per cent in FY21 v/s 3.9% in FY20
• Current account surplus of 2% of GDP likely in FY21
• Growth for FY21 was cushioned on account of Govt consumption and net exports
• Agriculture did the best during the peak pandemic
• Worst hit were contact-based services, manufacturing and construction sectors
• Mention of healthcare - Key role of the government is to actively shape the structure of the healthcare market
• Softening of CPI inflation recently reflects easing of supply side constraints that affected food inflation.
• New farm laws will empower farmers in their engagement with processors, wholesalers, aggregators, large retailers and provide level-playing field.
• Survey expects fiscal slippages to continue into FY22 and Govt may need to continue with an expansionary fiscal stance in order to sustain the recovery in aggregate demand.

The Survey made a special mention about India’s sovereign rating taking a beating and said that it does not reflect the true fundamentals of the economy. The survey said, “Never in the history of sovereign credit ratings has the 5th largest economy been rated as the lowest rung of investment grade (BBB -).” It added, “India’s fiscal policy must not remain beholden to a noisy, biased measure of India’s fundamentals. India’s forex reserves can cover an additional 2.8 standard deviation negative event. It is imperative that sovereign credit rating methodology be made more transparent, less subjective.”