Finance Minister Nirmala Sitharaman tabled the pre-Budget Economic Survey for 2020-21 in the Lok Sabha, as the Budget Session of the Parliament kicked off on Friday, 29 January. A GDP growth of 11 percent has been projected for the financial year 2021-22 by the survey.
The survey notes that growth recovery will be driven by government consumption, and India's nominal GDP will grow by 15.4 percent in 2021-22. The sharp recovery of real GDP growth of 10-12 percent is based on a low base effect and inherent strength of the economy, it added.
The combined fiscal deficit will exceed the target in FY21.
The survey also expects the economy to grow at a rate of 6.5 percent in 2022-23 and 7 percent in 2023-24 based on trends, and aided by structural reforms.
This path would entail a growth in real GDP by 2.4% over the absolute level of 2019-2020, implying that the GDP would take two years to reach and go beyond its pre-pandemic levels.
Stating that the financial year 2020-21 has been difficult, trends from April-November 2020 suggest a fiscal slippage during the ongoing year too.
Chief Economic Advisor KV Subramanian launched the Economic Survery 2020-21 and began his press conference, saying that India’s COVID policy was formulated with the principle that “GDP growth will return, but not human lives.” Like we recognised in the policy, growth has returned, said the CEA on Friday, 29 January.
Subramanian said that even without the lockdown, the coronavirus pandemic would have had a significant impact on India’s economy. He added that the strong correlation between decline in cases and deaths is common across all states, not just a few, “But what the lockdown did ensure is help a coordinated response, enabling saving lives and livelihoods.”
‘Mature and Farsighted Policy’
Calling India’s policy response “mature” and “farsighted”, the CEA said, “India undertook short term pain to get long term gain. The 'V-shaped recovery' makes India a sui generis case in mature policy making".
The survey highlighted “potential of public investment, especially in a slowdown”, and called for fiscal policy reforms to support growth.
India must aspire to increase its Gross Expenditure on research and development from around 1.5 percent to 3 percent of GDP, stated the survey.
The Economic Survey indicted that the credit appetite in FY 2020-21 was muted by subdued bank credit. It added, “However, credit growth to agriculture and allied activities accelerated to 7.4% in October 2020 from 7.1% in October 2019. October 2020 saw resilient credit flows to sectors such as construction, trade and hospitality, while bank credit remained muted to the manufacturing sector. Credit growth to the services sector accelerated to 9.5% in October 2020 from 6.5% in October 2019".
The survey noted that progressive reforms undertaken by the government have nourished the agriculture sector which is “set to cushion the shock of the COVID-19 pandemic on the Indian economy in 2020-21 with a growth of 3.4% in both Q1 and Q2”.
"High food prices remained a major driver of inflation in 2020. However, inflation in December, 2020 fell back into the RBI’s target range of 4+/-2% to reach 4.6% year-on-year as compared to 6.9% in November. This was driven by a step fall in food prices, particularly of vegetables, cereals, and protein products and favorable base effects," stated the survey according to Times of India.
“Exports are expected to decline by 5.8% and imports by 11.3% in the second half of the year. India expected to witness current account surplus during the current financial year after a gap of 17 years,” KV Subramanian said, quoting the Economic Survey.
“India stands to gain more from its investments into innovation than many other countries,” said the CEA. He added that this was the first time India has entered the “top 50 innovative economies in 2020-21”.
As per the IMF, India is “expected to emerge as the fastest growing economy in the next two years”, said the CEA. It would take two years for India’s economy to go past the pre-pandemic level, stated the survey. “The survey projections are in line with IMF estimate of real GDP growth of 11.5% in 2021-22 for India and 6.8% in 2022-23.
“Resilience of economy similar to cricket team,” said the CEA.
Briefly touching upon farm laws when asked by a reporter, Subramanian said that “as economists, we believe that the new farm laws will be beneficial.”
Earlier, addressing the joint session of Parliament, President Ram Nath Kovind had said that the “national flag was insulted” on Republic Day, and as many as 16 Opposition parties boycotted the address showing solidarity towards farmers’ protest.
The Lok Sabha was adjourned till 11 am on Monday, 1 February. Finance Minister Nirmala Sitharaman will present the Union Budget for 2021-2022 on the same day.
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