Policy response has ensured V-shaped recovery underway
The Survey projects GDP growth of 11% and 6.8% in 2021-22 and 2022-23, in line with IMF’S projection
NEW DELHI: The Indian economy will face a much larger contraction than most major economies in 2020-21 because of the pandemic’s disruption. But a timely policy response, on both the health and economic fronts, has ensured that a V-shaped recovery is already underway in the economy and India is on course to regain its position as the world’s fastest growing large economy for the next two years, according to the Economic Survey presented in parliament on January 29.
The Survey projects a GDP growth of 11% and 6.8% in 2021-22 and 2022-23, in line with the latest projection made by the IMF (which estimated 11.5% in 2021-22 and 6.8% the year after). The ongoing recovery, however, will not lead to a withdrawal of fiscal support by the government and one can expect a big increase in health spending in the budget, which, along with critical supply-side reforms will strengthen the future economic prospects for the economy.
While, the Survey, in keeping with the previous stance of the government, has claimed that the worst is over on the macroeconomic front, it expects growing stress in the financial sector — something that will need proactive regulatory vigilance. in framing monetary policy.
Not only is food inflation, which has a large share in headline Consumer Price Index (CPI), largely driven by supply side factors, the current inflation basket, which has a base year of 2011-12 does not capture the possible reduction in weight of food items in last decade. To be sure, had the government not scrapped findings of the 2017-18 Consumption Expenditure Survey, CPI basket would have been revised by now. The Survey uses these points to argue that “a greater focus on core inflation is warranted”.
“The Economic Survey 2020-21 has focused on an assessment of how the Covid-19 pandemic is being managed, the trade-offs between the differing compulsions of community health protection and economic recovery, with the protection of lives being the paramount consideration; how to manage the dialectical tensions between ramping up growth and reducing inequality; the need for sensible regulations, as well as the centrality of innovation for fostering growth. The Survey also points to the need for ramping up public spending in healthcare as well as in community surveillance and protection; and the need to revive and fortify investments in infrastructure creation as delineated in the National Infrastructure Pipeline. This focus on accelerating infrastructure creation is expected to yield three-fold benefits: improving people’s ease of living, priming the economy, and absorbing large numbers of the young into non-farm employment. The Economic Survey aims to chart a way out of the pandemic crisis, towards a future of robust growth, as also suggested by the IMF’S World Economic Outlook of January 2021,” Arun M Kumar, chairman and CEO, KPMG in India.