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Insights into Editorial: Economic Survey predicts 11% growth in fiscal 2022

 

Context:

India’s economy is firmly in the middle of a V-shaped recovery and will bounce back to record 11% growth in 2021-22 after an estimated 7.7% contraction this year, according to a ‘conservative’ estimate in the Economic Survey for 2020-21.

The Survey termed the growth a ‘lockdown dividend’ from the country’s stringent response to the COVID-19 pandemic.

 

Economic Survey 2020- 2021:

Theme: The Economic Survey 2020-21 has been dedicated to all the COVID-19 warriors, who have really helped in upholding India.

  1. -Saving Lives and livelihoods
  2. -COVID warriors joined hands to uphold India
  3. -V-shaped economic recovery
  4. -Opportunities outweigh risks

The cover of the economic survey shows these COVID warriors including the nurses, doctors and scientists who have helped in developing the vaccine in record time and sanitation workers who have come together in the time of adversity to uphold India. The cover also shows v-shaped recovery that has happened in the India economy.

This year’s economic survey is being delivered in an e-book format. The Finance Ministry has also launched an official Economic Survey app for smooth access to the document.

 

India reaping ‘lockdown dividend’ by saving lives and livelihood: Economic Survey:

  1. India is reaping the “lockdown dividend” from the preventive measures it adopted at the onset of the COVID-19 pandemic indicating its willingness to take short-term pain for long-term gain, said the Economic Survey tabled in Parliament.
  2. India was amongst the first of the countries that imposed a national lockdown when there were only 500 confirmed cases.
  3. The document also said despite the hard-hitting economic shock created by the global pandemic, India is witnessing a V-shaped recovery with a stable macroeconomic situation aided by a stable currency, comfortable current account, burgeoning forex reserves, and encouraging signs in the manufacturing sector output.
  4. The document further said India recognised that while GDP growth will recover from the temporary shock caused by the pandemic, human lives that are lost cannot be brought back.
  5. The response drew on epidemiological and economic research, especially those pertaining to the Spanish Flu, which highlighted that an early, intense lockdown provided a win-win strategy to save lives, and preserve livelihoods via economic recovery in the medium to long-term.
  6. To implement its strategy, India imposed the most stringent lockdown at the very onset of the pandemic.
  7. This enabled flattening of the pandemic curve and, thereby, provided the necessary time to ramp up the health and testing infrastructure.
  8. As per the survey, India has transformed the short-term trade-off between lives and livelihoods into a win-win in the medium to long-term that saves both lives and livelihoods.
  9. By estimating the natural number of cases and deaths expected across countries based on their population, population density, demographics, tests conducted, and the health infrastructure, the survey compare these estimates with actual numbers to show that India restricted the COVID-19 spread by 37 lakh cases and saved more than 1 lakh lives.

 

High out-of-pocket expenses for health can lead to poverty:

  1. India has one-of-the highest level of Out-Of-Pocket Expenditures (OOPE) contributing directly to the high incidence of catastrophic expenditures and poverty, notes the Economic Survey.
  2. It suggested an increase in public spending from 1% to 2.5-3% of GDP as envisaged in the National Health Policy 2017 can decrease the OOPE from 65% to 30% of overall healthcare spend.
  3. The Survey states about 65% of deaths in India are now caused by non-communicable diseases (NCDs) with ischemic heart diseases, chronic obstructive pulmonary disease (COPD) and stroke being the leading causes.
  4. The Survey observes that the health of a nation depends critically on its citizens having access to an equitable, affordable and accountable healthcare system.
  5. The OOPE, as a share of total health expenditure, drops precipitously when public health expenditure increases.
  6. The Survey also underlines that OOPE for health increases the risk of vulnerable groups slipping into poverty because of catastrophic health expenditures.
  7. The life expectancy in a country correlates positively with per capita public health expenditure.

 

Important lessons for a democratic country: Focusing on long-term gains:

  1. Making a strong pitch for the government to loosen its purse strings to spur the economy with a ‘counter-cyclical fiscal push’ till the country returns to its pre-COVID growth path, the Survey tabled in Parliament defended the conservative fiscal stimulus during the initial phase of the pandemic, stating that pushing down on the accelerator while the brakes are clamped ‘only wastes fuel’.
  2. The V-shaped economic recovery while avoiding a second wave of infections make India a sui generis case in this unique, synchronized global recession, the Survey said.
  3. Adding that a rapid vaccination roll-out this year could boost recovery in the services sectors as well as stir up private consumption and investment.
  4. With India expected to emerge as the fastest growing economy in the next two years as per IMF, the Survey argued that the country’s “mature policy response to this ‘once-in-a-century’ crisis provides important lessons for democracies to avoid myopic policy-making and demonstrates the significant benefits of focusing on long-term gains”.

 

Infrastructure quintessential to boost growth: Economic Survey 2020-21:

  1. Terming investment in infrastructure “quintessential” to boost growth, the Economic Survey said post unlocking of the economy, infra sectors are poised for growth and construction of roads is expected to return to the high pace attained before COVID-19.
  2. The infrastructure sector will be the key to overall economic growth and macroeconomic stability, the Survey said emphasising that the year after the crisis (2021-22) will require sustained and calibrated measures to facilitate the process of economic recovery and enable the economy to get back on its long-term growth trajectory.
  3. Basic infrastructure facilities in the country provide the foundation of growth. In the absence of adequate infrastructure, the economy operates at a suboptimal level and remains distant from its potential and frontier growth trajectory.
  4. The strong backward-forward linkages of the infrastructure sector are well established.
  5. Therefore, investment in infrastructure is quintessential for more rapid and inclusive economic growth.

 

Conclusion:

While India’s absolute growth numbers may be remarkable in 2021-22 due to the low base effect, returning to pre-pandemic growth and output levels would take longer.

The global economy, including India, has been set back in time by the pandemic induced crisis. In the five years before 2020-21, Indian economy grew at an average growth of 6.7%.

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.

It is assumed that the economy grows at its trend growth rate of 6.5% in 2022-23 and 7% in 2023-24, aided by the structural reforms.