The Economic Survey 2021 has been tabled in the Parliament. It is prepared by the Chief Economic Advisor of the Ministry of Finance. It is known that the Survey is an economic document of the finance ministry and it discusses the overall economic performance of the concerned financial year. It also suggests the economic policy for the following fiscal year. The Survey’s first advance estimate of the GDP shows a contraction of 7.7%. In the first quarter, the GDP contracted by 23.9% and the contraction was 7.5% in the second quarter. The Survey has also observed that India would be able to achieve GDP growth rate of 11% in 2021-22 - on the back of a nationwide vaccination drive to prevent Covid-19.
Some more important observations of the Survey
The Economic Survey has observed the possibility of a V-shaped recovery of GDP growth - that is the GDP fell very sharply and in turn it would rise very sharply. The recovery is demonstrated by the regaining of GDP growth in the second quarter. As the intensity of the pandemic dropped, some indicators like e-way bills, rail freight, GST collections and power consumption have not only surpassed pre-pandemic levels but also previous levels. There are other indicators like increasing commercial papers issuance, easing yields, and sturdy credit growth to MSMEs which also indicate a sharp revival of economic growth. It has also been seen that quick recovery has been rekindled in the services sector, in consumption and in investment.
The Survey points out that bank credit remained subdued in 20-21 amid risk aversion and muted credit growth appetite. The credit growth to agriculture and allied activities accelerated to 7.4% in October 2020 from 7.1% in October 2019. The Survey also points out that in FY 21, the agriculture sector performed well but contact based services, manufacturing and the construction sector were worst hit due to the pandemic. At the same time, food prices remained a major driver of inflation in 2020.
The external sector recorded growth with a current account surplus of 3.1% of GDP in the first half of the year - largely supported by strong service sector export and weak demand leading to contraction in imports. Consequently, foreign exchange reserves rose. External debt as a ratio of GDP also rose marginally to 21.16% at the end of September 2020 from 20.6%. Net FPI inflows recorded an all-time monthly high of $ 9.8 billion in November 2020.
The Survey has observed that both demand and supply sides were impacted in the pandemic phase. With various reform measures, the crisis in the supply side was minimised in the medium to long run. But aggregate demand, particularly the demand for non-essentials, remained a pain point during the pandemic. The Survey noted that there was a provision of food subsidy targeting 80.96 crore beneficiaries. In the un-lockdown phase, the uncertainty declined and the precautionary motives to save subsided.
Some areas of concern
The Survey has predicted a ‘V’ shaped recovery of growth. But at the same time, it observes that the GDP level will reach the pre-Covid levels only in FY 22-23. That means a speedy recovery may not be possible. Additionally, many economists think that there are several uncertainties. First, one should know what recovery means. It may be either to reach the level of GDP or it may be the return of the growth rate. An important uncertainty is whether there would be a normal monsoon in 2021. Dharmakirti Joshi, Chief Economist, CRISIL, has pointed out that only once in the last 20 years has India seen more than two consecutive years of normal monsoons. The past two years have seen normal monsoons. Many economists like Arun Kumar, former professor, Jawaharlal Nehru University, New Delhi, thinks that unless the unorganised sector returns to normal activities, the GDP will not return to pre-Covid levels. At present, the unorganised sector is suffering heavily. The Survey also points out that India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie. It also supported the new farms laws.