Economy projected to grow at 8-8.5% in FY23, 'imported inflation' a concern

New Delhi, January 31

The worst of the pandemic has receded and the Indian economy is expected to witness real GDP expansion of 9.2 per cent in 2021-22 and 8.0 to 8.5 per cent in 2022-23 after an unprecedented contraction in 2020-21, said the annual Economic Survey tabled in Parliament on Monday by Union Finance Minister Nirmala Sitharaman.

Editorial: State of indian economy: Several imponderables cast a shadow

Virtuous investment cycle

... We hope that along with various measures taken and private sector capex also kicking in, we will go into a virtuous cycle of income and job generation.

4-pronged approach

Focused on short-term support to vulnerable sections, medium-term fiscal stability, but never left sight of structural supply side reforms & laid emphasis on process reforms.

—V Anantha Nageswaran, Chief Economic Adviser

The projection will help India retain the tag of the world’s fastest-growing major economy. Though the vaccination programme has covered the bulk of the population and economic momentum is building back, the survey warned of “imported inflation” mainly in fuel and edible oils that could upset the calculations.

Highlights: Economic activity at pre-pandemic level | ‘Imported inflation’ mainly in fuel and edible oils could upset calculations | Crop diversification to oilseeds, pulses and horticulture must get priority

However, the global environment still remains uncertain. A new wave has hit the world, inflation is elevated and major central banks are initiating the cycle of liquidity withdrawal. This is why it is especially important to look at India’s macroeconomic stability indicators and their ability to provide a buffer,” noted the survey, which pins hopes on the long-term benefits of supply-side reforms to provide more employment. The periodic labour force survey (PLFS) data shows that urban employment has recovered almost to the pre-pandemic levels. After the disastrous impact on the economy during the first national lockdown in 2020, the survey found that almost all indicators show that the economic impact of the “second wave” in 2021 was much smaller even though it admitted that the health impact was more severe.

The saving grace was agriculture, which was the least impacted, and is expected to grow by 3.9 per cent in 2021-22 after growing 3.6 per cent the previous year.

The gross value addition in industry will rise by a whopping 11.8 per cent in 2021-22 but that is due to the contraction of 7 per cent in 2020-21.

The services sector, which provides the maximum employment in India, has been the hardest hit. This sector is estimated to grow by 8.2 per cent in 2021-22 following last fiscal’s 8.4 per cent contraction.

The total consumption will grow by 7 per cent in 2021-22 but significant contributions will be from government spending in the form of public expenditure on infrastructure.

Exports of both goods and services have been exceptionally strong so far, and imports have recovered strongly with recovery in domestic demand.

Despite the pandemic-related disruptions, the balance of payments was in surplus throughout the last two years, allowing the RBI to amass foreign exchange reserves of $634 billion. Despite the high debt, the survey hopes that high forex reserves, sustained FDI and rising exports earnings should provide an adequate buffer against possible global liquidity tapering in 2022-23.

The financial system could have been an area of stress but the banks are well capitalised during turbulent times. New public issues contributed by raising over Rs 86,000 crore, a record amount.

The survey found that one of the reasons the economy is in a good position is the government’s response strategy in which it used safety nets for vulnerable sections and its emphasis on supply-side reforms such as deregulation, simplification of processes, removal of “retrospective tax” and production-linked incentives.

FISCAL REPORT CARD

To realise the mission of new, self-reliant India, there was a need to redefine public sector participation in business enterprises and to encourage private sector participation in all sectors — Survey

Privatisation push

Terming privatisation of Air India as having boosted the divestment drive, the Survey said the new Public Sector Enterprise Policy and Asset Monetisation Strategy introduced by the government reaffirmed its commitment to privatisation and strategic disinvestment.

Agri sector least impacted

• 3.6% growth in 2020-21
• 3.9% growth likely in 2021-22
• 18.8% share in Gross Value Added (FY 22)
• Remained largest employer
• 566.58 LMT of paddy procured (2021-22)
• 433.44 LMT wheat procured (2021-22)
• 8.15% growth in livestock over
• 5 yrs ending 2019-20

Gross value addition in industry to rise by 11.8% in 2021-22 but that is due to contraction of 7% in 2020-21

Services sector, which provides maximum jobs, has been the hardest hit. It is expected to grow by 8.2% in 2021-22 following last fiscal’s 8.4% contraction

‘Agile approach’ A saviour

Implemented through economic response to pandemic. Based on feedback loops, monitoring of actual outcomes, flexible responses and safety-net buffers, it helped India emerge relatively unscathed from the pandemic

Sensex races to 58,000-mark ahead of Budget

IT, bank stocks spurt

Equity benchmarks notched up solid gains on Monday after a two-session sliding streak as healthy growth projections in the Economic Survey and supportive global cues enthused investors

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