Analysis of Economic Survey 2021-22

Important highlights of the 2021-22 Economic Survey of India

Analysis of Economic Survey 2021-22

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• The story: The Economic Survey for 2021-22 was presented by the Union Finance Minister in Parliament. It predicts a GDP growth at 8-8.5% in 2022-23. The central theme of this year’s Economic Survey is the “Agile approach”. It claimed that the Indian economy was recovering with a "W shaped" recovery. From talking of V-shaped, and then K-shaped recoveries, the W-shaped recovery is a new invention. (Or a tilted W at that, going by Principal Economic Adviser Sanjeev Sanyal — of indices crashing every time there is a spurt in infections, followed by a sharp uptake.)
• What is the Economic Survey: It is an annual document released by the Ministry of Finance which contains the most authoritative and updated source of data on India’s economy. Prepared by the Economics Division of the Department of Economic Affairs (DEA) under the guidance of the Chief Economic Advisor (CEA), it is usually presented a day before the Union Budget is presented in the Parliament. The first Economic Survey in India was presented in the year 1950-51. Up to 1964, it was presented along with the Union Budget. From 1964 onwards, it has been delinked from the Budget.
• Key points: India’s GDP is expected to grow by 9.2% in 2021-22. The Survey estimates growth in 2022-23 and 8% to 8.5% assuming that there will be no more pandemic related economic disruptions, there will be normal monsoonal rainfall, oil prices will be in the range of $70-$75/barrel, global supply chain disruptions will ease out and orderly withdrawal of global liquidity by major central banks will happen following the fiscal stimulus provided during the pandemic.

1. The 9.2% growth estimate for 2021-22 suggests a recovery above the pre-pandemic level of 2019-20 by 1.3%.
2. India’s investment to GDP ratio has hit 29.6% in 2021-22, the highest level in seven years. The increased capital formation in the economy is due to the government’s policy thrust on increased capex and infrastructure spending.
3. Despite an overall recovery in the economy, private consumption and segments such as travel, trade and hotels are yet to fully recover. Private consumption accounts for a large proportion of the GDP.
4. The Economic Survey notes India’s macro-economic stability indicators on the external front, fiscal front as well as financial sector health as being well-placed. India has recorded a modest current account deficit of 0.2% in the first half of the current fiscal year and there have been robust capital inflows in the form of foreign investment.
5. The relatively good position of the financial system would help increase the private sector investment which along with the government expenditure can play a critical role in the economic recovery process. It estimates that the double-digit wholesale price inflation in recent months will ‘even out’.
6. The wholesale inflation (WPI) remained above 10% for the ninth consecutive month in December 2021. Retail inflation (CPI) accelerated to a five-month high of 5.6%. The price of crude oil is moving up. It is moving towards the $90/barrel mark. The high excise duty has resulted in the retail price of fuel remaining high.
7. Repo rate was maintained at 4% in 2021-22. The Reserve Bank of India undertook various measures such as G-Sec Acquisition Programme and Special Long-Term Repo Operations to provide further liquidity.
8. The Gross Non-Performing Advances ratio of Scheduled Commercial Banks (SCBs) declined from 11.2% at the end of 2017-18 to 6.9% at the end of September, 2021. Net Non-Performing Advances ratio declined from 6% to 2.2% during the same period.
9. The Agriculture sector experienced buoyant growth in the past two years, accounting for a sizable 18.8% (2021-22) in Gross Value Added (GVA) of the country registering a growth of 3.6% in 2020-21 and 3.9% in 2021-22. The Minimum Support Price (MSP) policy is being used to promote crop diversification.
10. The Livestock sector has grown at a CAGR of 8.15% over the last five years ending 2019-20. (India runs one of the largest food management programmes in the world.)
11. The Index of Industrial Production (IIP) grew at 17.4% during April-November 2021 as compared to (-)15.3% in April-November 2020.
12. Capital expenditure for the Indian railways has increased to Rs. 155,181 crores in 2020-21 from an average annual of Rs. 45,980 crores during 2009-14 and it has been budgeted to further increase to Rs. 215,058 crores in 2021-22 – a five times increase in comparison to the 2014 level.
13. Extent of road construction per day increased substantially in 2020-21 to 36.5 Kms per day from 28 Kms per day in 2019-20 – a rise of 30.4%. During the first half of 2021-22, the service sector received over USD 16.7 billion Foreign Direct Invest – accounting for almost 54% of total FDI inflows into India.
14. Services exports surpassed pre-pandemic level in January-March quarter of 2020-21 and grew by 21.6% in the first half of 2021-22 - strengthened by global demand for software and IT services exports.
15. Considering Start-Ups, India has become the third largest start-up ecosystem in the world after the US and China. Number of new recognized start-ups increased to over 14000 in 2021-22 from 733 in 2016-17.
16. Employment in urban sector affected by pandemic has recovered almost to the pre-pandemic level.

• Liquidity concerns: To stabilise financial conditions, hit badly by the pandemic, expansionary macroeconomic policies were adopted worldwide. The abundant global liquidity led to emerging economies like India experiencing large capital inflows but several central banks in both advanced and emerging market economies have begun unwinding from crisis-time policies as warranted by their own growth-inflation dynamics. The tightening of global liquidity poses a challenge to economic recovery in India given that it might result in large scale capital outflows.
• Summary: The Economic Survey estimates for the Indian economy point towards economic recovery in India. However, the realization of these estimates would depend on challenges like future COVID-19 variants, inflation pressures, increasing energy prices and volatile global financial scenarios. This year's Survey was made by Sanjeev Sanyal and his newly-anointed boss and Chief Economic Adviser V. Anantha Nageswaran has just taken charge.
• EXAM QUESTIONS: (1) Do you agree that the Indian economy has recently experienced a V-shaped recovery? Give reasons in support of your answer. (2) Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. (3) What are the top 10 observations of the 2022 Economic Survey of India? Explain.

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