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Summary learnings from Economic Survey of India 2020-21
Read more on - Polity | Economy | Schemes | S&T | Environment
- GDP Growth rate: The Survey says the economy will grow by 11% in real terms (adjusted for inflation) (nominal growth 15.4%) during 2021-22. This is near the 11.5% forecast by the International Monetary Fund (IMF). This will after the Gross Domestic Product (GDP) will have contracted by 7.7% during 2020-21 to just about ?134.4 lakh crore (in real terms). The 11% growth expected in 2021-22 is on this low base. So, the 11% growth from this base means that the Indian GDP in 2021-22 will be at ?149.2 lakh crore (in real terms), which is just 2.4% more than the GDP of ?145.7 lakh crore in 2019-20. So, the Indian GDP in 2021-22 will be just a bit more than what it was in 2019-20. So, two years of economic growth has been turned to zero.
- Government taxes: The gross tax revenue (GTR) earned by the government during April 2020 to November 2020 fell by 12.6% to Rs. 10.26 lakh crore. Other than the excise duty, taxes earned by the government have gone down sharply, due to the economy contracting. The excise duty collections are up due to higher prices per litre of petrol and diesel, during 2020. The GTR for FY 21 will be well short of the budgeted Rs. 24.2 lakh crore. A portion of the gross tax revenue earned by the union government is shared with the state governments. This devolution has fallen by 20.7% to Rs. 3.34 lakh crore between April and November 2020. State governments of India are hit hugely by the pandemic. Some recovery during the second half was seen in higher collections of GST. The monthly GST collections in December 2020 was Rs. 1.15 lakh crore (12% more than in December 2019). The Survey attributes this increase to "the combined effect of the rapid economic recovery post pandemic and the nation-wide drive against GST evaders and fake bills along with many systemic changes introduced recently, which have led to improved compliance." There is a darker explanation: lakhs of small businesses have shut down, and their business has moved to the formal sector which pays GST (but doesn't employ as many).
- Other revenue sources: The disinvestment of PSUs was supposed to fetch huge sums, by selling of govt. stake. Of the targeted Rs. 2.1 lakh crore, by 20th January, 2021, the government was able to earn only Rs. 15,220 crore (7.2% of the targeted amount). More than half of this money came by selling shares in Hindustan Aeronautics Limited (HAL) and Indian Railway Catering and Tourism Corporation Ltd (IRCTC). Who is responsible? The Survey says Covid is. It seems that despite the BSE Sensex (India’s famous stock market index) crossing 50,000 points, govt. couldn't fetch good prices for its holdings.
- Fiscal deficit: It is the difference between what a government earns and what it spends during the year. This difference is funded through the govt. borrowing from the markets, by issuing bonds. Lower GTR and disinvestment means that fiscal deficit will go up this year. As of January 8, the union government had borrowed a total of ?10.72 lakh crore, which was 65% more than what it had borrowed in the corresponding period in the previous financial year. The state governments had borrowed a total of ?5.71 lakh crore during the period, which was 41% more than the previous financial year. So the fiscal deficit of the union government for 2020-21 will be higher than 3.5% of the GDP, perhaps close to 7% of the GDP. General government deficit (states also added) will be much more.
- Stock markets are unreal: While the RBI's Financial Stability Report (Jan 2021) spoke of the disconnect between the stock market levels and the real economy, the Economic Survey too says the same. How did the markets go up so much? Due to the FPIs, who between April and December 2020, net invested a massive $30 billion in buying Indian stocks (five times the amount invested in 2019). The future expected earnings of companies doesn't justify this.
- Components of GDP expenditure: The Survey says the Indian economy will recover during the second half of 2020-21. This is due to government consumption (GFCE) in the second half expected to grow by 17%, after contracting by 3.9% during the first half. The private consumption (PFCE) which forms more than half of the Indian economy is expected to contract by 0.6% in the second half, after having contracted by 18.9% during the first half. The investment in the Indian economy (GFCF) is expected to contract by 0.8% in the second half of the year, against a contraction of 29% in the first half. So the ability of the economy to create jobs continues to remain limited. So demand uptick will be muted. Per capita incomes will drop.
- Story of agriculture: Of the major sectors - agriculture, industry and services - the only sector expected to grow in 2020-21 is agriculture which is expected to grow by 3.4%. In 2019-20, agriculture's GVA stood at 14.7%. In 2020-21, it is expected to grow to 16.3%, due to the contraction of other major sectors. This is the first time the sector’s share in the economy will grow, in close to a decade.
- Bank credit growth: The impact of covid has also been seen on bank credit growth or the increase in loans given by banks in comparison to the previous year. As of January 1, bank credit growth stood at 6.7%. Since September 2019, bank credit growth has been in single digits, a reason to worry. In fact, one of the reasons for this is the fact that banks continue to remain undercapitalized. The Survey feels that this might lead to banks lending to zombie companies, firms that are not making enough money to even be able to repay the interest on their loans. Under-capitalized banks may again resort to risk-shifting and zombie lending, thereby severely worsening the problem. The adverse impact could then spill over to the real economy through good borrowers and projects being denied credit."
- Inflation: High inflation has been the norm recently. Inflation as measured by the consumer price inflation between April and December 2020 stood at 6.6% in comparison to the previous year. This has been on account of high food inflation of 9.1%. The Survey feels that "supply chain bottlenecks owing to COVID-19 induced disruptions" have been the main cause behind this inflation. As the economy opens up, food inflation has also been coming down and that’s clearly good news.
- Summary: The Survey says that the "contraction this year reflects the ‘once in a century crisis’ unleashed by the pandemic and associated public health measures". Further, it expects 2021-22 to much better than 2020-21.
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