By Sunil Kumar Sinha
The Economic Survey 2021-22 outlines many of the imperatives that are well known and highlights them to project a GDP growth of 8.0%-8.5% for FY23. It correctly identifies both the areas of strength and risk to the Indian economy. It articulates that focus on (i) safety-nets for vulnerable sections of society and business segment, (ii) vaccination programme for the bulk of the population, (iii) various credit/ liquidity enhancing schemes and (iv) significant increase in capital expenditure on infrastructure has created an environment for a sustained long-term expansion of the Indian economy.
No doubt these measures were not only important from the point of view of taking Indian economy out of the clutches of pandemic and associated lockdown-induced downturn, but also to put back on track. However, the articulation of the Economic Survey 2021-22 that India’s emphasis on supply-side reforms for recovery rather than a total reliance on demand management is somewhat misplaced.
National Statistical Organisation’s advanced estimate shows that PFCE, which is the largest component of GDP (58.6%) even in FY22 grew only 6.9% y-o-y in FY22, despite a low base and sales data of many consumer durables showing robust growth. This indicates that the consumption demand is still not broad-based and is weak. In fact, FY22 PFCE is still 2.9% lower than FY20 PFCE despite growing at 6.9% y-o-y.
Consumer confidence survey of Reserve Bank of India (RBI) shows that consumer sentiments which had collapsed May 2019 onwards have not recovered to the pre-Covid level even now as households are still sceptical about the ongoing economic and employment situation. This suggests that consumption demand is still weak and government consumption demand alone, with a share of 12.5% in the GDP, will not be sufficient to revive the demand. Nothing much is articulated on this aspect in Economic Survey 2021-22, except about the safety nets used to cushioning the impact of Covid-19 on vulnerable sections of the society.
Another important area where Economic Survey 2021-22 dwells at length is the government capital expenditure/National Infrastructure Pipeline. Indeed, government capex is showing a rising trend. It increased to 2.5% of GDP as per FY22 budget estimate from 2.2% as per FY21 revised estimate. However, given the long gestation period and cost overruns of large infrastructure projects, its benefit to the economy at large and employment in particular gets realised only in the medium- to long-term. However, given the precarious employment situation, the need is to focus more on infrastructure where the gestation time is short and projects are employment intensive. Economic Survey 2021-22 is silent on this.
Given the pandemic and its impact on life, livelihoods and households behaviour there is an urgent need to not only put more money in the hands of households but there is an urgent need to create employment opportunities in the short run.
Some of the risk identified by the Economic Survey 2021-22 and rightly so are (i) new waves of Covid-19 pandemic, (ii) likely liquidity withdrawal by major central banks across globe, (iii) high global commodity prices. Although Economic Survey 2021-22 believes that inflation is high but expects it even out due to the base effect. Economic Survey 2021-22 in fact says that India does need to be wary of imported inflation, especially from elevated global energy prices. It is easier said than done. In fact, in the Indian context two factors that have pushed up inflation are crude oil prices and food prices.
On the whole, the Economic Survey 2021-22, like other economic surveys of the past, provides a good account of economic health of the country but does not dwell on the issues/future reforms/wish list that are important for sustaining the growth of the Indian economy in the medium-/long-term.
The writer is Principal economist, India Ratings & Research. Views expressed are personal.