Economic Survey 2021-22

Context:

The Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Economic Survey 2021-22 in Parliament today.

Theme: Agile approach  implemented through India’s economic response to the COVID-19 Pandemic shock.

What is the Agile approach mentioned in the Economic Survey 2021-22?

• As per the Agile approach, short-term policy responses can be tailored to an evolving situation rather than what a model may have predicted.
• The short-term policy response is possible because of the explosion of real-time data that allows for constant monitoring. Such information includes GST collections, digital payments, satellite photographs, electricity production, cargo movements, internal/external trade, infrastructure roll-out, delivery of various schemes, mobility indicators etc.
• The “Agile approach” is based on feedback loops, real-time monitoring of actual outcomes, flexible responses, safety-net buffers and so on.
• Planning is not done in the Agile approach as a deterministic prediction of the flow of events. Still, planning is relevant in the framework – mostly for scenario analysis, identifying vulnerable sections, and understanding policy options

What is the Economic Survey?

• The Economic Survey of India is an annual document released by the Ministry of Finance.
• It contains the most authoritative and updated source of data on India’s economy.
  • It is a report that the government presents on the state of the economy in the past one year, the key challenges it anticipates, and their possible solutions.
• It is prepared by the Economics Division of the Department of Economic Affairs (DEA) under the guidance of the Chief Economic Advisor.
• It is usually presented a day before the Union Budget is presented in the Parliament.
  • The first Economic Survey in India was presented in the year 1950-51. Up to 1964, it was presented along with the Union Budget. From 1964 onwards, it has been delinked from the Budget.

Background

• The Survey was first published in 1950-51 and was initially part of the Budget documents.
  • It was less than 50 pages in the 1950s and contained a brief outline of economic developments of the previous year. The Survey of 1957-58 had just 38 pages.
• It was primarily descriptive and contained little in the way of analysis and policy prescriptions.

From 1958-59, the length of the survey started increasing with the introduction of more charts and tables.

In India, the Economic Survey prepares the background framework for the Union Budget. It facilitates a bird’s eye view of the trends noticed in different sectors over the previous year like agriculture, manufacturing, employment, infrastructure, prices, exports, imports, foreign exchange reserve, and money supply for example. The various objectives of the Economic Survey in India can be summed up under three heads:

• Reviewing the country’s economic development over the past 12 months.
• Summarising how the different development projects of the country perform.
• Highlighting the government’s policy initiatives.

The highlights of the Economic Survey 2021-22 are as follows:

State of the Economy:

• 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 projected to grow by 8- 8.5 percent in real terms in 2022-23.  
• The year ahead poised for a pickup in private sector investment with the financial system in good position to provide support for economy’s revival. 
• Projection comparable with World Bank and Asian Development Bank’s latest forecasts of real GDP growth of 8.7 percent and 7.5 percent respectively for 2022-23.
• As per IMF’s latest World Economic Outlook projections, India’s real GDP projected to grow at 9 percent in 2021-22 and 2022-23 and at 7.1 percent in 2023-2024, which would make India the fastest growing major economy in the world for all 3years.
• Agriculture and allied sectors expected to grow by 3.9 percent; industry by 11.8 percent and services sector by 8.2 percent in 2021-22.
• On demand side, consumption estimated to grow by 7.0 percent, Gross Fixed Capital Formation (GFCF) by 15 percent, exports by 16.5 percent and imports by 29.4 percent in 2021-22.
• Macroeconomic stability indicators suggest that the Indian Economy is well placed to take on the challenges of 2022-23.
• Combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide adequate buffer against possible global liquidity tapering in 2022-23.
• Economic impact of “second wave” was much smaller than that during the full lockdown phase in 2020-21, though health impact was more severe.
• Government of India’s unique response comprised of safety-nets to cushion the impact on vulnerable sections of society and the business sector, significant increase in capital expenditure to spur growth and supply side reforms for a sustained long-term expansion.
• Government’s flexible and multi-layered response is partly based on an “Agile” framework that uses feedback-loops, and the use of eighty High Frequency Indicators (HFIs) in an environment of extreme uncertainty.

Fiscal Developments:

• The revenue receipts from the Central Government (April to November, 2021) have gone up by 67.2 percent (YoY) as against an expected growth of 9.6 percent in the 2021-22 Budget Estimates (over 2020-21 Provisional Actuals).
• Gross Tax Revenue registers a growth of over 50 percent during April to November, 2021 in YoY terms.  This performance is strong compared to pre-pandemic levels of 2019-2020 also. 
• During April-November 2021, Capex has grown by 13.5 percent (YoY) with focus on infrastructure-intensive sectors.
• Sustained revenue collection and a targeted expenditure policy has contained the fiscal deficit for April to November, 2021 at 46.2 percent of BE.
• 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, but is expected to follow a declining trajectory with the recovery of the economy. 

External Sectors:

• India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID levels during the current financial year.
• There was significant pickup in net services with both receipts and payments crossing the pre-pandemic levels, despite weak tourism revenues.
• Net capital flows 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 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 crossed US$ 600 billion in the first half of 2021-22 and touched US $ 633.6 billion as of December 31, 2021.
• As of end-November 2021, India was the fourth largest forex reserves holder in the world after China, Japan and Switzerland.

Monetary Management and Financial Intermediation:

• The liquidity in the system remained in surplus.
  • Repo rate was maintained at 4 per cent in 2021-22.
    • RBI undertook various measures such as G-Sec Acquisition Programme and Special Long-Term Repo Operations to provide further liquidity.
• The economic shock of the pandemic has been weathered well by the commercial banking system:
  • YoY Bank credit growth accelerated gradually in 2021-22 from 5.3 per cent in April 2021 to 9.2 per cent as on 31^st December 2021.
    • 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.
    • Net Non-Performing Advances ratio declined from 6 percent to 2.2 per cent during the same period.
    • Capital to risk-weighted asset ratio of SCBs continued to increase from 13 per cent in 2013-14 to 16.54 per cent at the end of September 2021.
    • The Return on Assets and Return on Equity for Public Sector Banks continued to be positive for the period ending September 2021.
• Exceptional year for the capital markets:
  • Rs. 89,066 crore was raised via 75 Initial Public Offering (IPO) issues in April-November 2021, which is much higher than in any year in the last decade.
    • Sensex and Nifty scaled up to touch peak at 61,766 and 18,477 on October 18, 2021.
    • Among major emerging market economies, Indian markets outperformed peers in April-December 2021.

Prices and Inflation:

• The average headline CPI-Combined inflation moderated to 5.2 per cent in 2021-22 (April-December) from 6.6 per cent in the corresponding period of 2020-21.

• The decline in retail inflation was led by easing of food inflation.
• Food inflation averaged at a low of 2.9 per cent in 2021-22 (April to December) as against 9.1 per cent in the corresponding period last year.
• Effective supply-side management kept prices of most essential commodities under control during the year.
• Proactive measures were taken to contain the price rise in pulses and edible oils.
• Reduction in central excise and subsequent cuts in Value Added Tax by most States helped ease petrol and diesel prices.
• Wholesale inflation based on Wholesale Price Index (WPI) rose to 12.5 per cent during 2021-22 (April to December).
•  This has been attributed to:
  • Low base in the previous year,
  • Pick-up in economic activity,
  • Sharp increase in international prices of crude oil and other imported inputs, and
  • High freight costs.
• Divergence between CPI-C and WPI Inflation:

• The divergence peaked to 9.6 percentage points in May 2020.
• However, this year there was a reversal in divergence with retail inflation falling below wholesale inflation by 8.0 percentage points in December 2021.
• This divergence can be explained by factors such as:
  • Variations due to base effect,
  • Difference in scope and coverage of the two indices,
  • Price collections,
  • Items covered,
  • Difference in commodity weights, and
  • WPI being more sensitive to cost-push inflation led by imported inputs.
• With the gradual waning of base effect in WPI, the divergence in CPI-C and WPI is also expected to narrow down.

Sustainable Development and Climate Change:

• 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.
• Number of Front Runners (scoring 65-99) increased to 22 States and UTs in 2020-21 from 10 in 2019-20.
• In North East India, 64 districts were Front Runners and 39 districts were Performers in the NITI Aayog North-Eastern Region District SDG Index 2021-22.
• 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.
• In August 2021, the Plastic Waste Management Amendment Rules, 2021, was notified which is aimed at phasing out single use plastic by 2022.
• Draft regulation on Extended Producer Responsibility for plastic packaging was notified.
• The Compliance status of Grossly Polluting Industries (GPIs) located in the Ganga main stem and its tributaries improved from 39% in 2017 to 81% in 2020.
• The consequent reduction in effluent discharge has been from 349.13 millions of litres per day (MLD) in 2017 to 280.20 MLD in 2020.
• The Prime Minister, as a part of the national statement delivered at the 26^th Conference of Parties (COP 26) in Glasgow in November 2021, announced ambitious targets to be achieved by 2030 to enable further reduction in emissions.
• The need to start the one-word movement ‘LIFE’ (Lifestyle for Environment) urging mindful and deliberate utilization instead of mindless and destructive consumption was underlined.

Agriculture and Food Management:

• The Agriculture sector experienced buoyant growth in past two years, accounting for a sizeable 18.8% (2021-22) in Gross Value Added (GVA) of the country registering a growth of 3.6% in 2020-21 and 3.9% in 2021-22.
• Minimum Support Price (MSP) policy is being used to promote crop diversification.
• Net receipts from crop production have increased by 22.6% in the latest Situation Assessment Survey (SAS) compared to SAS Report of 2014.
• 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.
• The Livestock sector has grown at a CAGR of 8.15% over the last five years ending 2019-20. It has been a stable source of income across groups of agricultural households accounting for about 15% of their average monthly income.
• Government facilitates food processing through various measures of infrastructure development, subsidized transportation and support for formalization of micro food enterprises.
• India runs one of the largest food management programmes in the world.
• Government has further extended the coverage of food security network through schemes like PM Gareeb Kalyan Yojana (PMGKY).

Industry and Infrastructure:

• Index of Industrial Production (IIP) grew at 17.4 percent (YoY) during April-November 2021 as compared to (-)15.3 percent in April-November 2020.
• Capital expenditure for the Indian railways has increased to Rs. 155,181 crores in 2020-21 from an average annual of Rs. 45,980 crores during 2009-14 and it has been budgeted to further increase to Rs. 215,058 crores in 2021-22 – a five times increase in comparison to the 2014 level.
• Extent of road construction per day 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.
• Net profit to sales ratio of large corporates reached an all-time high of 10.6 percent in in July-September quarter of 2021-22 despite the pandemic (RBI Study).
• Introduction of Production Linked Incentive (PLI) scheme, major boost provided to infrastructure-both physical as well as digital, along with measures to reduce transaction costs and improve ease of doing business, would support the pace of recovery.

Services:

• GVA of services crossed pre-pandemic level in July-September quarter of 2021-22; however, GVA of contact intensive sectors like trade, transport, etc. still remain below pre-pandemic level.
• Overall service Sector GVA is expected to grow by 8.2 percent in 2021-22.
• During April-December 2021, rail freight crossed its pre-pandemic level while air freight and port traffic almost reached their pre-pandemic levels, domestic air and rail passenger traffic are increasing gradually – shows impact of second wave was much more muted as compared to during first wave.
• During the first half of 2021-22, service sector received over US$ 16.7 billion FDI – accounting for almost 54 percent of total FDI inflows into India.
• IT-BPM services revenue reached US$ 194 billion in 2020-21, adding 1.38 lakh employees during the same period.
• Major government reforms include, removing telecom regulations in IT-BPO sector and opening up of space sector to private players.
• Services exports surpassed pre-pandemic level in January-March quarter of 2020-21 and grew by 21.6 percent in the first half of 2021-22 – strengthened by global demand for software and IT services exports.
• India has become 3^rd largest start-up ecosystem in the world after US and China. Number of new recognized start-ups increased to over 14000 in 2021-22 from 733 in 2016-17.
• 44 Indian start-ups have achieved unicorn status in 2021 taking overall tally of unicorns to 83, most of which are in services sector.

Social Infrastructure and Employment:

• 157.94 crore doses of COVID-19 vaccines administered as on 16^th January 2022; 91.39 crore first dose and  66.05 crore second dose.
• With revival of economy, employment indicators bounced back to pre-pandemic levels during last quarter of 2020-21.
• 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.
• According to Employees Provident Fund Organisation (EPFO) data, formalization of jobs continued during second COVID wave; adverse impact of COVID on formalization of jobs much lower than during the first COVID wave.
• Expenditure on social services (health, education and others) by Centre and States as a proportion of GDP increased from 6.2 % in 2014-15 to 8.6% in 2021-22 (BE)

As per the 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
• Under Jal Jeevan Mission (JJM), 83 districts have become ‘Har Ghar Jal’ districts.
• 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.

Source: PIB

Economics Survey: PDF