Financial Survey pegs GDP progress at 11 per cent in FY22

New Delhi, January 29

India’s economy is likely to grow by 11 per cent in the fiscal year beginning April 1 as a vaccine drive and rebound in consumer demand help it emerge from the carnage inflicted by a strict coronavirus lockdown, the Economic Survey said on Friday.

The rebound will follow an estimated 7.7 per cent contraction in the Gross Domestic Product (GDP) in the current financial year ending March 31, the document—an annual report card on the economy—tabled in Parliament by Finance Minister Nirmala Sitharaman said.

This is the steepest annual contraction of the economy in the history of independent India. The economy had last witnessed its last annual contraction of 5.2 per cent in the fiscal year 1979-80.

The contraction in the current 2020-21 fiscal (April 2020 to March 2021) compares with a revised growth rate of 4 per cent in the previous year.

The rollout of vaccines against COVID-19, which has killed nearly 1.54 lakh in the country, will re-energise the world’s fifth-largest economy with a growth rate that is strongest since the 1991 economic liberalisation.

The “V-shaped recovery is supported by COVID vaccination drive,” the survey said.

Chief Economic Adviser Krishnamurthy Venkata Subramanian, who led the team which authored the pre-budget document, said India’s strict lockdown prevented 37 lakh cases and one lakh deaths.

“The country took short term pain for long term gain. While GDP growth will recover, and it has, lost human lives cannot be brought back,” he said at a post-presentation press conference.

Stating that the government calibrated demand-side policies, he said mega vaccination drive should enable recovery, especially in the services sector.

“Push the accelerator only when brakes are removed,” he said referring to India’s COVID-19 strategy.

The government announced a raft of measures, including cash and free ration and gas to vulnerable as well as credit support to industry, to lift the economy once the two-month-long nationwide lockdown began to be eased.

The forecast for next year is in line with the International Monetary Fund’s (IMF) estimate of 11.5 per cent expansion, which will once again make India the fastest-growing major economy in the world ahead of China’s 8.1 per cent pace.

The survey sees headline inflation moderating going forward and said there is a need for more sustained and calibrated measures to facilitate the process of economic recovery in the new fiscal year.

India’s GDP contracted by a record 23.9 per cent in Q1 (April-June) and 7.5 per cent in Q2, reflecting the unparalleled effect of the containment measures that were taken to control the pandemic.

“The fundamentals of the economy remained strong as gradual scaling back of lockdowns, along with the astute support of Aatmanirbhar Bharat Mission (stimulus) has placed the economy firmly on the path of recovery,” the survey said.

India had witnessed four contractions in GDP since 1960-61. The contraction in 1965-66 and 1971-72 coincided with wars and droughts while the year 1979-80 was associated with a severe drought and political instability.

“A common factor in all these years was a steep fall in agricultural output. The year 2020-21, on the contrary, has been bestowed with abundant monsoons leading to the agricultural sector emerging as the silver lining of the economy. The contraction this year reflects the ‘once in a century crisis’ unleashed by the pandemic and associated public health measures,” it said.

Faster normalisation of business activities amid gradual lifting of restrictions, higher festive and pent-up demand and policy support is expected to translate into a faster-than-anticipated economic recovery over the second half.

The roll-out of vaccination, it said, will be supported by the supply-side push from reforms and easing of regulations, push to infrastructural investments, boost to manufacturing sector through the Productivity Linked Incentive Scheme, recovery of pent-up demand for the services sector, increase in discretionary consumption subsequent and pick up in credit given adequate liquidity and low-interest rates.

The survey recommended an increase in public healthcare spending from 1 per cent to 2.5-3 per cent of GDP. Also, the health infrastructure must be agile to respond to pandemics—healthcare policy must not become beholden to ‘saliency bias’.

Telemedicine needs to be harnessed to the fullest by investing in internet connectivity and health infrastructure.

The survey said India over-regulates the economy resulting in regulations being ineffective even with relatively good compliance with the process.

The solution is to simplify regulations and invest in greater supervision which, by definition, implies greater discretion, it said suggesting asset quality review exercise immediately after the forbearance be withdrawn.

India is expected to witness a current account surplus during the current financial year after a gap of 17 years, it said.

The country recorded a current account surplus of 3.1 per cent of GDP in the first half of the year largely supported by strong services exports.

Net foreign portfolio investment inflows recorded an all-time monthly high of USD 9.8 billion in November 2020, as investors’ risk appetite returned.

India, which saw the world’s fastest rollout of 10 lakh vaccines in 6 days, is also the only country among emerging markets to receive equity FII inflows in 2020. PTI

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