New Delhi: The Economic Survey on Friday, January 29, sought to place the tumultous economic events of last year in context and projected that with the roll-out of the COVID-19 vaccine, India will post GDP growth of 11% in FY’22.While double-digit growth is welcome, the Survey is quick to add that when combined with the 7.7% contraction in GDP in FY’21, India’s GDP in FY’22 will be only 2.4% more than what was recorded in FY’20.The 2020-2021 survey, which is authored by Chief Economic Adviser Krishnamurthy Subramanian, is an annual flagship assessment of the Indian economy and key developments or policies.It is usually presented by the finance minister in Parliament a day before the Union Budget is announced.The opening chapter of the second volume of this year’s survey walks the reader through the effect of the COVID-19 pandemic on India’s economic trajectory. It notes that while the fiscal slippage in the current financial year will be “transient”, there is an important need for economic growth to ensure sustainability of debt or India’s ability to pay the interest and principal amounts of its borrowings.Growth in FY’22The Survey points out that after an expected 7.7% contraction in FY’21, India’s real GDP is projected to record a growth of 11% in FY’22, while nominal GDP is expected to grow by 15.4%.“The global economy, including India, has been set back in time by the pandemic-induced crisis. In the five years before 2020-21, the Indian economy grew at an average of 6.7%,” it pointed out.“In 2021-22, a sharp recovery of real GDP growth of 10-12% is expected based on a low base effect and inherent strengths of the economy.”However, the combination of 11% in FY’22 and -7.7% in FY’21 would “entail a growth in real GDP by 2.4% over the absolute level of 2019-20 — implying that the economy would take two years to reach and go past the pre-pandemic level”.As the table below shows, 11% growth in FY22 would imply that Indian GDP is expected to clock in at Rs 149.2 lakh crore, which is just 2.4% more than the Rs 145.7 lakh crore that was recorded in FY’20.Credit: Economic Survey 2020-21.“The global economy, including India, has been set back in time by the pandemic-induced crisis. In the five years before 2020-21, the Indian economy grew at an average of 6.7%,” it pointed out.“In 2021-22, a sharp recovery of real GDP growth of 10-12% is expected based on a low base effect and inherent strengths of the economy.”However, the Survey adds that if even we assume the Indian economy will still lag in terms of trend level of output.“It is assumed that the economy grows at its trend growth rate of 6.5% in 2022-23 and 7.0% in 2023-24 aided by the structural reforms. If two scenarios of 12% growth and 10% growth in 2021- 22 are envisaged, India would be 91.5% and 90% below the trend level of output respectively by 2023-24.Credit: Economic Survey 2020.Expansionary fiscal path and fiscal fearsWith most analysts predicting that India’s fiscal deficit will hit over 7% of GDP, the Survey merely states that it will overshoot the initial estimates of 3.5%. However, it notes, that to “sustain the recovery”, an expansionary fiscal stance is needed.“In order to sustain the recovery in aggregate demand, the government may have to continue with an expansionary fiscal stance,” the report said, adding the growth recovery would facilitate buoyant revenue collections in the medium term and enable a sustainable fiscal path.In a closely tied issue, in a whole separate chapter, the Survey declares that India’s sovereign credit ratings do not reflect its fundamentals.“Within its sovereign credit ratings cohort – countries rated between A+/A1 and BBB-/ Baa3 for S&P/ Moody’s – India is a clear outlier on several parameters, i.e. a sovereign whose rating is significantly lower than mandated by the effect on the sovereign rating of the parameter,” it notes.Also read: Economic Survey Takes Aim at Out-of-Pocket Spend, High Private Healthcare Costs“The outlier status remains true not only now but also during the last two decades”.In the concluding remarks of the chapter’s summary CEA Subramanian drives home the point: India’s fiscal policy, therefore, must not remain beholden to a noisy/biased measure of India’s fundamentals and should instead reflect upon Rabindranath Tagore’s sentiment of “a mind without fear.”Defending farm lawsThe pre-budget document also came out strongly swinging in favour of the new farm laws, saying they herald a new era of market freedom which can go a long way in improving lives of small and marginal farmers in India.These legislations were designed “primarily” for the benefit of “small and marginal farmers”, which constitute around 85 per cent of the total number of farmers and are the biggest sufferer of the “regressive” APMC-regulated market regime, the survey said.The Survey defended the farm laws in the backdrop of long-running farmers’ agitation at various borders of the national capital seeking repeal of these legislations expressing concern that they are pro-corporate and could weaken government regulated mandis, also called Agriculture Produce Marketing Committees (APMCs).Also read: Three Farm Bills and India’s Rural Economy“Several Economic Surveys have expressed concern at functioning of the APMCs and the fact that they sponsor monopolies. Specifically, Economic Surveys for the years 2011-12, 2012-13, 2013-14, 2014-15, 2016-17, 2019-20 focused on the reforms required in this context,” the survey said.PDS hike?Interestingly, the Economic Survey also spends some time on India’s food bill, saying that is becoming “unmanageably large” and that the Modi government should consider increasing the selling price of food grains provided through ration shops to over 80 crore beneficiaries.Also read: Economic Survey Takes Aim at Out-of-Pocket Spend, High Private Healthcare CostsFood grains via ration shops are supplied at highly subsidised rates of Rs 3 per kg for rice, Rs 2 per kg for wheat and Rs 1 per kg for coarse grains through Public Distribution System (PDS) as per the National Food Security Act (NFSA).CIP is the subsidised rate at which food grains are distributed through ration shops. In order to ensure food security to the vulnerable sections, the government has continued with the subsidised pricing under the NFSA.Wheat and rice prices have not been revised since the introduction of the Act in 2013 although the economic cost has increased every year.The government in Budget 2020 allocated Rs 1,15,569.68 crore for supplying subsidised food grain through PDS and welfare schemes.(With inputs from agencies)
