The Economic Survey for 2021-22, tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha, expects the GDP to grow by 9.2% this year and 8% to 8.5% in 2022-23, even as it expressed concerns about the implications of hardening inflation and energy prices.
“Growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending. The year ahead is also well poised for a pick-up in private sector investment with the financial system in a good position to provide support to the revival of the economy,” the Survey projected.
The Survey’s GDP growth estimate for the coming year is based on the assumption that ‘there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the range of US$70-$75/bbl, and global supply chain disruptions will steadily ease over the course of the year’.
The Survey acknowledged the risks that have emerged at the time it was being written, such as the new COVID-19 variant, Omicron, sweeping across the world, inflation jumping up in most countries, and the cycle of liquidity withdrawal being initiated by major central banks.
It highlighted that the country’s macro-economic stability indicators on the external front, fiscal front as well as the financial sector health and inflation, were well-placed to take on the challenges of 2022-23. ‘One of the reasons’ for this comfortable position, the Survey argued, was the government’s unique response strategy that didn’t ‘pre-commit to a rigid response’ but ‘opted to use safety nets for vulnerable sections’ based on information.
While the 9.2% growth estimate for 2021-22 suggested a recovery above the pre-pandemic level of 2019-20, the Survey conceded that private consumption and segments such as travel, trade and hotels were yet to fully recover. “The stop-start nature of repeated pandemic waves makes it especially difficult for these sub-sectors to gather momentum,” it said.
“Latest advance estimates suggest full recovery of all components on the demand side in 2021-22 except for private consumption. When compared to pre-pandemic levels, recovery is most significant in exports followed by government consumption and gross fixed capital formation,” it noted.
Investment recovery
The country’s investment to GDP ratio had hit 29.6% in 2021-22, the highest level in seven years, the Survey explained, attributing this capital formation to the government’s policy thrust on quickening the ‘virtuous cycle of growth via capex and infrastructure spending’ had increased capital formation in the economy.
“While private investment recovery is still at a nascent stage, there are many signals which indicate that India is poised for stronger investment,” it observed, citing record corporate profits in recent quarters and high mobilisation of risk capital by firms.
Inflation, Current account worries
“Inflation has reappeared as a global issue in both advanced and emerging economies.... India does need to be wary of imported inflation, especially from elevated global energy prices,” it stated, even as it suggested that the double-digit wholesale price inflation in recent months would ‘even out’.
However, an equally strong recovery was seen in imports, rendering India’s net exports negative for the first half of the year, from a surplus in 2020-21. India has thus recorded a modest current account deficit of 0.2% in the first half, but robust capital flows in the form of continued inflow of foreign investment were sufficient to finance it, it pointed out.
“Elevated global commodity prices, revival in real economic activity driving higher domestic demand and growing uncertainty surrounding capital inflows may widen current account deficit further during the second half of the year. However, it is expected to be within manageable limits,” it said.
Taking on criticism that the ‘Atmanirbhar Bharat approach’ marks ‘a return to old school protectionism’, the Survey concluded that “... the focus on economic resilience is a pragmatic recognition of the vagaries of international supply chains’.
