The strong revival in its revenues in the current fiscal, helped primarily by buoyant tax receipts, means the Centre “has fiscal space to provide additional support (to the economy) if necessary”, according to the Economic Survey 2021-22 tabled in Parliament by finance minister Nirmala Sitharaman on Monday, a day ahead of the Budget for 2022-23.

The survey projected India’s real GDP would grow by 8-8.5% in 2022-23 against 9% seen by the IMF in its latest forecast. That is a reasonably sanguine rate, given that it is built on a 9.2% expansion estimated by the National Statistical Office for the current financial year, upon last year’s sharply contracted base (-6.6%). It would mean the economy next year would be around 10% bigger than it was in the pre-pandemic level (FY20).

A pointer on Tuesday’s Budget from the survey is that the finance minister may make her tax revenue projections assuming a nominal GDP expansion rate of 14-14.5%, with buoyancy at 1.2 or thereabouts.

The survey’s growth prediction is, of course, subject to several caveats – no further debilitating pandemic-induced economic disruption, ‘orderly’ withdrawal of global liquidity, oil at $70-75/barrel, an easing of global supply chain constraints, and a normal monsoon.

The survey acknowledges the rising gap between two segments of the economy – the thriving organised corporate sector and the informal sector that consists of a section of MSMEs and several service industries which have been in the doldrums.

Against the backdrop of a decade-long stagnation in private investments and household consumption seen lagging the pre-pandemic level by 3% even in the current fiscal, the survey said the economy next year would 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.”

It added: “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.”

As official data reveal per capita income declined sharply in both FY20 and FY21 and elevated inflation is compounding the problem, the survey sought to allay the concerns over the stagnant consumption scenario.

According to the survey, the Central government’s debt, which had gone up from 49.1% of GDP in 2019-20 to 59.3% in 2020-21 (the general government debt had crossed 90% that year itself), “is expected to follow a declining trajectory with the recovery of the economy”.

While last year’s survey had mooted the bold idea that the government could be ‘more relaxed about debt and fiscal spending,’ and argued for a rethink on the established fiscal consolidation policy, the 2021-22 survey is more guarded on the fiscal front. It vindicated India’s ‘agile fiscal policy’ response to the pandemic based on “feedback loops”, explaining how it differed from the ‘waterfall strategy’ of introducing front-loaded stimulus packages, adopted by most other countries in 2020.

The survey cautioned that the global environment still remained uncertain, given the Omicron variant sweeping across the world, high inflation in most countries, and the cycle of liquidity withdrawal being started by major central banks.

On financial and external-sector stability, it noted India’s forex reserves are equivalent to 13.2 months of merchandise imports and are higher than the country’s external debt. A strong rebound in Centre’s revenues in 2021-22 (up 67% on year in April-Nov) would enure its fiscal targets for the year would be comfortably met while maintaining the support to the economy and the ramping up of capital expenditure.

The survey pointed out that the banking system is well capitalised and the overhang of non-performing assets (NPAs) seem to have structurally declined even allowing for some lagged impact of the pandemic. It may, however, be noted that RBI in its financial stability report for December 2021 had said that asset quality issues were far from over for banks and that scheduled commercial banks’ gross non-performing asset (GNPA) ratio might rise to 8.1%-9.5% by September 2022 from a six-year low of 6.9% in September 2021. Of course, the central bank did say that its stress tests showed that all banks would be able to comply with the minimum capital requirements even under severe stress scenarios, even though significant number of non-banking finance companies would be hit in the event of liquidity shocks.

Government consumption is estimated to grow by a strong 7.6% in FY22, surpassing the pre-pandemic level, the survey said, adding that a recent dip in vehicle registrations reflected “persistent supply-side constraints owing to the shortage of semiconductor chips rather than lack of consumption demand”. “Private consumption is poised to see stronger recovery with rapid coverage in vaccination and faster normalisation of economic activity,” it added.

According to the survey, the expected increase in private consumption levels would propel capacity utilisation, thereby fuelling private investments.