Summary Of Indian Economic Survey - 2022

In 2022-23, India's GDP is expected to rise by 8.0-8.5%, owing to broad vaccine coverage, gains from supply-side reforms and regulatory ease, healthy export growth, and the availability of fiscal space to ramp up capital spending.

Smt. Nirmala Sitharaman, the Union Minister for Finance and Corporate Affairs, yesterday tabled the Economic Survey 2021-22 in Parliament, stating that the year ahead is well-positioned for a pick-up in private sector investment, with the financial system in an advantageous position to support the economy's revival. The growth forecast for 2022-23 is based on the premise that no additional devastating pandemic-related economic disruption would occur, that the monsoon will be regular, that global liquidity withdrawal by major central banks will be orderly, and that oil prices will remain stable within a range of US$ 70-75/bbl. and global supply chain disruption eases off steadily over the year.

The Survey says the above projection is comparable with the World Bank’s and Asian Development Bank’s latest forecasts of real GDP growth of 8.7 per cent and 7.5 per cent respectively for 2022-23. As per the IMF’s latest World Economic Outlook (WEO) growth projections released on 25th January 2022, India’s real GDP is projected to grow at 9 per cent in both 2021-22 and 2022-23 and at 7.1 per cent in 2023-24. This projects India as the fastest-growing major economy in the world in all these three years.

Focusing on sectoral characteristics, the Survey claims that agriculture and allied industries have been the least affected by the epidemic, with the sector anticipated to grow by 3.9% in 2021-22, up from 3.6% the previous year. The area planted in Kharif and Rabi crops, as well as wheat and rice production, has gradually increased over time. Foodgrain production for the Kharif season is expected to reach a new high of 150.5 million tonnes this year. Furthermore, procurement of food grains through the central pool continued to rise in 2021-22, accompanied by minimum support prices, augur well for national food security and farmer earnings. Importantly, the sector's outstanding performance was aided by government initiatives that assured timely seed and fertiliser supply in the face of pandemic-related interruptions. It was aided by abundant monsoon rains, which resulted in reservoir levels exceeding the 10-year normal.

According to Survey, the industrial sector experienced a sharp turnaround from a 7% decline in 2020-21 to an 11.8% expansion this fiscal year. The manufacturing, construction, and mining sub-sectors all had a similar swing, however, the utility sector saw a more subdued cycle, as basic supplies like electricity and water were maintained even throughout the national lockdown. The contribution of industry to GVA is presently estimated to be 28.2%.

The survey emphasised that the services sector has been affected the most by the epidemic, particularly parts involving human contact. Following a decrease of 8.4% last year, this industry is expected to rise by 8.2% this fiscal year. It also mentioned that different sub-sectors have a wide range of performance. Both the finance/real estate and public administration divisions have risen significantly since COVID. Travel, trade, and hotels, on the other hand, have yet to fully recover. Even while tourism earnings have dropped substantially, software and IT-enabled services exports have exploded.

The survey noted that the total consumption is expected to increase by 7.0% in 2021-22, with government consumption continuing to be the largest contributor, as it was the previous year. Government consumption is expected to increase by 7.6%, above pre-pandemic levels. Private consumption is also anticipated to have improved dramatically, recovering 97% of pre-pandemic output levels, and it is expected to witness a stronger rebound with increased vaccine coverage and faster economic activity normalisation.

According to the survey, investment, as measured by Gross Fixed Capital Formation (GFCF), is predicted to expand by 15% in 2021-22, bringing it back to pre-pandemic levels. The government's focus on accelerating the virtuous cycle of growth through Capex and infrastructure spending has boosted capital creation in the economy, bringing the investment-to-GDP ratio to over 29.6% in 2021-22, the highest in seven years. While the recovery of private investment is still in its early stages, there are several signs that India is set for more investment. A strong and well-equipped banking sector is ready to effectively support private investment.

In terms of exports and imports, according to the survey, India's exports of both products and services have been unusually high in 2021-22. Despite various pandemic-related global supply constraints, merchandise shipments have been above $30 billion for eight straight months in 2021-22. Professional and management consulting services, audiovisual and allied services, freight transport services, telecommunications, computer, and information services have all seen significant increases in net services exports. In terms of demand, India's overall exports are predicted to increase by 16.5% in 2021-22, reaching pre-pandemic levels. With the restoration of local demand and the continued rise in the price of imported petroleum and metals, imports also rebounded sharply. In 2021-22, imports are predicted to increase by 29.4%, reaching pre-pandemic levels. As a result, India's net exports in the first half of 2021-22 were negative, compared to a surplus in the same time of 2020-21. However, the current account deficit is likely to stay within reasonable bounds.

Moreover, despite all the disruptions caused by the global pandemic, India's balance of payments has been in surplus for the past two years, according to the Survey. The Reserve Bank of India was able to continue building foreign exchange reserves, which were valued at US$634 billion on December 31, 2021. This is more than the country's external debt and equals 13.2 months of imports.

Inflation has resurfaced as a global issue in both advanced and emerging economies, according to the survey. Energy prices, non-food commodities, input prices, global supply chain disruptions, and increased freight costs all contributed to worldwide inflation this year. In India, consumer price inflation fell to 5.2% in 2021-22 (April-December) from 6.6% in 2020-21. In December 2021, it was 5.6% (YoY), which is within the intended tolerance zone. The lowering of food inflation led to a decrease in retail inflation in 2021-22. However, wholesale price inflation (WPI) has been in double digits.

The Survey says fiscal stimulus to the economy, as well as the health response, increased the budget deficit and government debt in 2020-21. Government income, on the other hand, has risen sharply in 2021-22. The federal government's revenue receipts increased by 67.2% (YOY) from April to November 2021, compared to a 9.6% predicted growth in the 2021-22 Budget Estimates above provisional actuals. Both direct and indirect tax collections have been strong, with gross monthly GST collections routinely above ? 1 lakh crore since July 2021.

The fiscal deficit for April-November 2021 has been contained at 46.2% of Budget Estimates (BE), which is nearly one-third of the proportion reached during the same period of the previous two years, thanks to sustained revenue collection and a targeted expenditure policy by the Government of India (135.1% of BE in April-November 2020 and 114.8% of BE in April-November 2019)

The financial sector is always a possible source of stress during unstable times, according to the survey. However, India's capital markets have performed admirably, allowing for unprecedented risk capital mobilisation by Indian enterprises. On October 18, 2021, the Sensex and Nifty reached their all-time highs of 61,766 and 18,477, respectively. Between April and November 2021, 75 Initial Public Offerings (IPOs) raised ?89,066 crores, a record amount for any year in the recent decade. Furthermore, the banking sector is well capitalised, and non-performing assets (NPAs) appear to have decreased fundamentally. Since 2018-19, Scheduled Commercial Banks' (SCBs) Gross Non-Performing Advances (GNPA) ratio (i.e. GNPAs as a percentage of Gross Advances) and Net Non-Performing Advances (NNPA) ratio have both decreased. The GNPA ratio of SCBs decreased from 7.5% at end-September 2020 to 6.9% at the end-September 2021.

Survey expressed that another distinguishing feature of India's economic response has been emphases on supply-side reforms rather than complete reliance on demand management. These supply-side changes include deregulation of a variety of industries, process simplification, and the elimination of legacy issues such as the "retrospective tax," privatisation, and production-linked incentives, among others. Even the government's substantial rise in capital spending, which provides infrastructural capacity for future growth, may be understood as a demand and supply response.

In India's supply-side strategy, there are two recurring themes:

a)??????Reforms that increase flexibility and creativity in order to deal with the post-Covid world's long-term unpredictability. This includes factor market reforms, deregulation of sectors such as space, drones, geospatial mapping, and trade finance factoring, process reforms in government procurement and the telecommunications sector, the elimination of legacy issues such as retrospective tax, privatisation and monetization, and the creation of physical infrastructure, among other things.

b)?????Reforms aimed at making the Indian economy more resilient. Climate/environmental policy, social infrastructures such as public tap water, toilets, basic housing, poverty insurance; support for vital industries under Atmanirbhar Bharat; a strong emphasis on reciprocity in foreign trade agreements, and much more.

The issue of 'process reforms' has been covered extensively throughout the Economic Survey. It's critical to understand the difference between deregulation and process reforms. The former refers to the government's role in a specific activity being reduced or eliminated. The latter, on the other hand, refers to the streamlining and smoothing of the process for activities that require the participation of the government as a facilitator or regulator.

The COVID-19 epidemic has made the last two years challenging for the global economy, according to the survey. Repeated outbreaks of infection, supply-chain disruptions, and, more recently, worldwide inflation have made policymaking extremely difficult. Faced with these difficulties, India's government devised a "Barbell Strategy," which incorporated a variety of safety nets to mitigate the impact on disadvantaged parts of society and the business sector. It then pushed through a major increase in infrastructure spending to restore medium-term demand, as well as aggressively implemented supply-side policies to position the economy for long-term expansion. This multi-layered, adaptable method is based in part on an "Agile" architecture that employs feedback loops and continuous monitoring of real-time data.

The survey emphasises that monetary policy has been calibrated to offer a cushion and sustain growth since the start of the epidemic, but it has been carefully controlled to avoid the medium-term dislocations of excess liquidity. The employment of government guarantees to give access to financial support to the economy in general and MSMEs, in particular, was an important feature of the safety net. In the last two years, the government has used an array of eighty High Frequency Indicators (HFIs) from both public and private sources to gauge the underlying state of the economy in real-time. These HFIs represent industry, services, global trends, macro-stability indicators, and a variety of other activities. Rather than relying on pre-defined answers, these HFIs assisted policymakers in tailoring their reaction to a dynamic circumstance, which has made India ahead compared to other parts of the world.

Finally, the Survey is confident that overall macro-economic stability indicators indicate that the Indian economy is well-positioned to meet the difficulties of 2022-23, and one of the reasons for this is the Indian economy's unique response plan.

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