Economic Survey for 2021-22

Context: Recently, Union Minister for Finance & Corporate Affairs, Smt. Nirmala Sitharaman presented the Economic Survey 2021-22 in the Parliament ahead of Budget to present the state of the Indian economy and suggest policy actions.

The central theme of this year’s Economic Survey is the “Agile approach”, implemented through India’s economic response to the COVID-19 Pandemic shock. 

• Informing further, the preface of Economic Survey states that the “Agile approach” is based on feed-back loops, real-time monitoring of actual outcomes, flexible responses, safety-net buffers and so on.

Significance of the Economic Survey

• The Economic Survey projects the Gross Domestic Product (GDP) for the next financial year and further includes crucial insights about India's economic condition.

Who prepares the Economic Survey?

• The Economic Survey is prepared by the Chief Economic Advisor (CEA), however, this time, the report was drafted by the principal economic adviser and other officials after Krishnamurthy Subramaniam's term ended in December 2021.
• For the past few years, the Economic Survey has been presented in two volumes, but this year it is clubbed in a single volume.

Why is Economic Survey tabled a day before the Budget?

• Since India's Independence in 1947, the Economic Survey was presented alongside the Budget, but was delinked in 1964 and was presented in advance, a practice that continues to date. 
• It is to be noted that it is not mandatory for the government to present the Economic Survey and the recommendations presented in the first volume are not binding on the government.

Key Points

• The pre-Budget Economic Survey is authored by a team led by Chief Economic Advisor (CEA).
• Days before the presentation, the Centre appointed economist V Anantha Nageswaran as the new CEA
• One of the most-watched numbers in the Economic Survey is the projection of GDP for the next fiscal.
• The previous economic survey was presented in the midst of the Covid-19 pandemic
• Recovery optimism from the impact of the pandemic is likely to figure prominently in the current year's economic survey
• High-frequency indicators like GST collections and corporate profitability are pointing towards significant upward movement

Key Developments
On the promotion of local languages in education

• Local languages are being promoted through the National Policy on Education.
• Emphasis is being laid on conducting important entrance examinations for undergraduate courses in Indian languages as well.
• This year, teaching in 6 Indian languages is starting in 19 engineering colleges in 10 states.

A boost for women

• The role of women in driving the rural economy is becoming more widespread.
• In 2021-22, 28 lakh self-help groups have been given assistance of Rs 65,000 crore by banks. This amount is 4 times more than in 2014-15.
• The government has started to free the society from this evil practice by declaring triple talaq as a legal offense.
• With the policy decisions and encouragement of my government, the number of women police personnel in various police forces has more than doubled as compared to 2014.

For India's farmers

• Government is working relentlessly to empower the rural economy and the farmers of the country. Keeping in mind the record production, the government has made a record government procurement.
• The country's agricultural exports have also increased at a record level due to the efforts of the government.
• Agriculture exports registered a growth of more than 25 percent in the year 2020-21. This export has reached about Rs 3 lakh crore.
• Rs 1.80 lakh crore have been given to more than 11 crore farmer families through the Pradhan Mantri Kisan Samman Nidhi. With this investment, big changes are visible in the agriculture sector today.

On the JAM trinity

• The way government has linked Jan Dhan-Aadhaar-Mobile i.e. JAM trinity with citizen empowerment, we are also constantly seeing the effect of it.
• Due to the connectivity of more than 44 crore poor countrymen with the banking system, crores of beneficiaries have got the benefit of direct cash transfer during the pandemic.

On government schemes

• Under the Pradhan Mantri Garib Kalyan Anna Yojana, government is giving free ration every month to all the poor.
• Jal Jeevan Mission started with the objective of delivering 'Har Ghar Jal' has started making a big difference in the lives of the people.
• Due to the relentless efforts of the last years, more than two crore pucca houses have been provided to the poor under the Pradhan Mantri Awas Yojana.
• Under the 'Pradhan Mantri Awas Yojana-Gramin', one crore seventeen lakh houses have been sanctioned in the last three years at a cost of about Rs 1.5 lakh crore.

On India's health infrastructure

• The Pradhan Mantri Ayushman Bharat Health Infrastructure Mission, launched by the government at a cost of Rs 64,000 crores, is a commendable example.
• This will not only help in meeting the present health needs but also prepare the country for the coming crises.
• As a result of the efforts made by the government, the popularity of Yoga, Ayurveda and traditional medicine is increasing continuously.

On India's vaccination rate

• Today, more than 90 percent of adult citizens in the country have received one dose of the vaccine, while more than 70 percent have received both.
• Vaccines being made in India are playing an important role in making the whole world free from epidemics and saving the lives of crores of people.

Key Highlights of the survey

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. o 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 31st 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 26th 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 (IP) 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 3rd 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 Emplovment:

• 157.94 crore doses of COVID-19 vaccines administered as on 16th 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 (IJM), 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.

Key challenges and concerns for Indian economy

• Supply chain disruption: The Survey notes that supply chain disruptions and slow economic growth have contributed to an increase in inflation. The withdrawal of stimulus in developed economies in the upcoming fiscal is likely to affect capital flows into the country.

Rising Imports: The surge in energy, food, non-food commodities, and input prices, supply constraints,disruption of global supply chains, and rising freight costs across the globe stoked global inflation during the year,” the economic survey said, noting that stimulus spending in developed economies and pent up demand during the pandemic could lead to “imported inflation” in India.

• Key drivers of inflation include oils and fats as well as fuel prices driven up by high international prices of the commodities.

Macro Economic Loopholes:  Major economies had begun the process of withdrawing liquidity that was extended during the pandemic in the form of stimulus checks and relaxed monetary policy to stimulate an economic recovery. Higher inflation has however led to a winding down of pandemic related stimulus.

• The likely withdrawal of liquidity by major central banks over the next year may also make global capital flows more volatile.

Pressure on Forex: India’s large and rising imports are also likely to put pressure on India’s exchange rate if capital flows to India decrease as a result of a withdrawal of stimulus in developed countries.
Employment Issue: A lack of jobs also continues to be among the primary concerns for the Indian economy with unemployment levels and labour force participation rates remaining worse than pre-pandemic levels.

Road Ahead

• Basis the macro-economic stability indicators, the Survey believes that the Indian economy is “well placed” to take on the challenges of 2022-23. The government’s strategy has been to not pre-commit to a “rigid response” while using safety nets for vulnerable sections, and responding iteratively based on Bayesian-updating of information.
• The Survey proposes use of the Agile approach to policymaking with 80 high-frequency indicators in an environment of “extreme uncertainty”. The approach, used in project management and technology development, assesses outcomes in short iterations while constantly making incremental adjustments. The suggestion is based on the availability of a “wealth of real-time data” to take feedback-based decisions.