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Prelims Spotlight: Budget and Economic Survey

14th Apr 2022

The Union Minister for Finance & Corporate Affairs has presented the Economic Survey 2021-22 in Parliament.

[1] State of the Economy

Economic growth: Indian economy estimated to grow by 9.2 percent in real terms in 2021-22 (as per first advanced estimates) subsequent to a contraction of 7.3 percent in 2020-21.
GDP growth: GDP projected to grow by 8- 8.5 percent in real terms in 2022-23.
Agriculture and allied sectors: In line with the longer term trend, the area sown in the Kharif cycle of 2021-22 was again higher than in the previous year. In contrast to the steady performance of the primary sector, the industrial sector went through a big swing by first contracting by 7 per cent in 2020-21 and then expanding by 11.8 per cent in this financial year.

[2] Fiscal Developments

Revenue receipts: These have gone up by 67.2 percent (YoY) as against an expected growth of 9.6 percent in the 2021-22 Budget Estimates.
Gross Tax Revenue: It registered a growth of over 50 percent during April to November, 2021 in YoY terms.
Borrowings: With the enhanced borrowings on account of COVID-19, the Central Government debt has gone up from 49.1 percent of GDP in 2019-20 to 59.3 percent of GDP in 2020-21.

[3] External Sectors

India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID levels during the current financial year.
Net capital flows: These were higher at US$ 65.6 billion in the first half of 2021-22, on account of continued inflow of foreign investment, revival in net external commercial borrowings, higher banking capital and additional special drawing rights (SDR) allocation.
India’s external debt: It rose to US $ 593.1 billion at end-September 2021, from US $ 556.8 billion a year earlier, reflecting additional SDR allocation by IMF, coupled with higher commercial borrowings.
Foreign Exchange Reserves: It touched US $ 633.6 billion in Dec 2021 making India the fourth largest forex reserves holder in the world after China, Japan and Switzerland.

[4] Monetary Management and Financial Intermediation

Repo was maintained: The liquidity in the system remained in surplus. Repo rate was maintained at 4 per cent in 2021-22.
GSAP: RBI undertook various measures such as G-Sec Acquisition Programme and Special Long-Term Repo Operations to provide further liquidity.
NPAs declined: The Gross Non-Performing Advances ratio of Scheduled Commercial Banks (SCBs) declined from 11.2 per cent at the end of 2017-18 to 6.9 per cent at the end of September, 2021.

[5] Prices and Inflation

Control over food inflation: The decline in retail inflation was led by easing of food inflation. Proactive measures were taken to contain the price rise in pulses and edible oils.
Supply constraints eased: Effective supply-side management kept prices of most essential commodities under control during the year.
Fuel price reduction: Reduction in central excise and subsequent cuts in Value Added Tax by most States helped ease petrol and diesel prices.

[6] Sustainable Development and Climate Change

Sustainable development: India’s overall score on the NITI Aayog SDG India Index and Dashboard improved to 66 in 2020-21 from 60 in 2019-20 and 57 in 2018-19.
Rise in forest cover: India has the tenth largest forest area in the world. In 2020, India ranked third globally in increasing its forest area during 2010 to 2020. In 2020, the forests covered 24% of India’s total geographical, accounting for 2% of the world’s total forest area.
Plastic waste management (PWM): In August 2021, the PWM Amendment Rules, 2021, was notified which is aimed at phasing out single use plastic by 2022.
Extended Producer Responsibility for plastic: Draft rules for plastic packaging was notified.
Pledge on Net-Zero Emissions: The PM participated at COP-26 in Glasgow. He announced ambitious targets to achieve net-zero by 2070.

[7] Agriculture and Food Management

- Minimum Support Price (MSP) policy: It is being used to promote crop diversification.
- Allied sector growth: Allied sectors including animal husbandry, dairying and fisheries are steadily emerging to be high growth sectors and major drivers of overall growth in agriculture sector.
- Food security: Government has further extended the coverage of food security network through schemes like PM Gareeb Kalyan Yojana (PMGKY).
- Income Support: Timely release of PM-KISAN Funds.

[8] Industry and Infrastructure:

Index of Industrial Production (IIP): It grew at 17.4 percent (YoY) during April-November 2021 as compared to -15.3 percent in April-November 2020.
Extent of road construction per day: This has increased substantially in 2020-21 to 36.5 Kms per day from 28 Kms per day in 2019-20 – a rise of 30.4 percent.
Production Linked Incentive (PLI) Scheme: It gave a major boost to infrastructure-both physical as well as digital.
In contrast to the steady performance of the primary sector, the industrial sector went through a big swing by first contracting by 7 per cent in 2020-21 and then expanding by 11.8 per cent in this financial year.

[9] Services Sector

Growth despite pandemic: Overall service Sector GVA is expected to grow by 8.2 percent in 2021-22.
Opening up of space sector to private players: Major government reform.
India becomes start-up hub: India has become 3^rd largest start-up ecosystem in the world after US and China.
Unicorns in India: 44 Indian start-ups have achieved unicorn status in 2021 taking overall tally of unicorns to 83, most of which are in services sector.

[10] Social Infrastructure and Employment

Universal vaccination: 157.94 crore doses of COVID-19 vaccines administered (as on 16^th January 2022).
Employment recovery: As per the quarterly Periodic Labour Force Survey (PFLS) data up to March 2021, employment in urban sector affected by pandemic has recovered almost to the pre-pandemic level.
Expenditure on social services (health, education and others): This expenditure by Centre and States as a proportion of GDP increased from 6.2 % in 2014-15 to 8.6% in 2021-22.
National Family Health Survey-5:

Total Fertility Rate (TFR) came down to 2 in 2019-21 from 2.2 in 2015-16
Infant Mortality Rate (IMR), under-five mortality rate and institutional births have improved in 2019-21 over year 2015-16
Jal Jeevan Mission (JJM): Under this, 83 districts have become ‘Har Ghar Jal’ districts.
Continuance of MGNREGS: Increased allotment of funds to Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) to provide buffer for unorganized labour in rural areas during the pandemic.

[11] Investment: Gross Fixed Capital Formation

Statistically it measures the value of acquisitions of new or existing fixed assets by the business sector, governments and “pure” households (excluding their unincorporated enterprises) less disposals of fixed assets. GFCF is a component of the expenditure on gross domestic product (GDP), and thus shows something about how much of the new value added in the economy is invested rather than consumed. GFCF is called “gross” because the measure does not make any adjustments to deduct the consumption of fixed capital (depreciation of fixed assets) from the investment figures.
Investment, as measured by Gross Fixed Capital Formation (GFCF) is expected to see strong growth of 15 per cent in 2021-22 and achieve full recovery of pre-pandemic level. Government’s policy thrust on quickening virtuous cycles of growth via capex and infrastructure spending has increased capital formation in the economy, lifting the investment to GDP ratio to about 29.6 per cent in 2021-22, the highest in seven years.
BARBELL STRATEGY, SAFETY NETS & AGILE RESPONSE:
“Barbell Strategy”: It combined a bouquet of safety-nets to cushion the impact on vulnerable sections of society/business, with a flexible policy response based on a Bayesian updating of information. This is a common strategy used in financial markets to deal with extreme uncertainty.
The Agile approach is a well-established intellectual framework that is increasingly used in fields like project management and technology development. In an uncertain environment, the Agile framework responds by assessing outcomes in short iterations and constantly adjusting incrementally.
The Waterfall approach entails a detailed, initial assessment of the problem followed by a rigid up-front plan for implementation. This methodology works on the premise that all requirements can be understood at the beginning and therefore pre-commits to a certain path of action. This is the thinking reflected in five-year economic plans, and rigid urban master-plans.