On January 29, when finance minister Nirmala Sitharaman tables the annual Economic Survey in Parliament, policy wonks, researchers and those who track the Indian economy will be keenly watching out for one number: the growth projections for 2021-22.
The survey, often described as the government’s official report card on the economy, will contain growth projections and much more.
Here’s a lowdown.
What is the Economic Survey?
The annual Economic Survey is usually presented a day before the presentation of the annual budget. It serves as the official report of the economy.
This year, Finance Minister will table it in Parliament on January 29, 2021, Friday—three days before she presents the Union Budget for 2021-22 on February 1, 2021.
What does it contain?
It gives a detailed account of the state of the economy, prospects and the policy challenges. It carries sectoral overviews and comments on reform measures that are required. The survey’s outlook serves as a marker about future policy moves.
Who drafts the Economic Survey?
The Economic Survey is authored by Chief Economic Adviser (CEA) Krishnamurthy Subramanian and his team.
What about projections?
The survey puts out economic growth forecasts, giving out detailed reasons why it believes the economy will expand faster or decelerate. It also sometimes forcefully argues for some specific reform measures.
Are such recommendations binding?
The government isn’t bound to follow these recommendations and only serve as a policy guide. The Economic Survey, in the past, has favoured policy moves that come into conflict with the official line of thinking of the government in power. These do not necessarily serve as pointers to what to expect in the annual budget. On many occasions, policy changes recommended in the Economic Survey have not been reflected in budget proposals.
Here are three key things to watch out for in this year’s survey.
The Survey’s gross domestic product (GDP) growth projections for 2021-22 and estimates for the current year (2020-21) will be among the most tracked pieces of statistics as it would offer cues on how quickly the government expects the economy to accelerate to a faster lane.
The Central Statistics Office’s (CSO’s) first advance estimates, released earlier this month, projected that India will decelerate at (-) 7.7 percent in 2020-21.
Unlike other recessions caused by systemic flaws such as the debt bubble of 2008, this has been brought upon by a medical emergency. Will India pass through multiple peaks and troughs spanning several quarters before reaching a steady growth state?
The International Monetary Fund (IMF) has projected that India’s real gross domestic product (GDP) growth will sizzle at 11.5 per cent in 2021 followed by 6.8 per cent growth in 2022.
This would be a perfect example of a textbook V-shaped recovery. This is the best-case scenario that everyone is hoping for. This happens when the economy rockets back as quickly as it had fallen, aided by a government stimulus that pushes up demand. Income and output rises, demand grows and higher spending by households prompt companies to add capacity lines and hire more.
Are there signs of the Indian economy bottoming out? Are there are green shoots of recovery that can be spotted in the broader economy? When will the Indian economy likely hit a sweet spot again? Will India regain its lost status as the world’s fastest growing major economy this year? The Economic Survey will contain answers to these questions.
Covid-19 and its spread has left a devastating trail of destruction across the economic landscape, blowing into smithereens the very framework of orthodox fiscal policy planning.
Every element in the world’s, and India’s, fiscal policy planning, almost every component in the annual accounting exercise, and every element of assumption and projection now requires a second look.
Policy managers will now be called upon to make a fresh set of postulations in an uncertain environment.
The economic disruptions have reduced revenue and tax compliance. The lockdowns and the prolonged restrictions have forced many a company to shut or curtail operations, lowering the government’s tax collections.
Healthcare costs will see a sharp spike and the government may be forced to offer a series of relief measures to help businesses and individuals stay solvent.
World leaders, including Prime Minister Narendra Modi, have not hesitated to compare the coronavirus challenges to that of a war. There may not be heavy artillery bombarding, but the mutilation to the economy may turn out to be far deeper, and wider.
What are the lessons for policy making and fiscal planning? One can expect a detailed chapter on Covid and the changes it has brought about in orthodox thinking in fiscal policy.
Every year the budget contains a chapter on newer ideas that needs to be brought on to mainstream policy practice from textbooks.
Last year it was about Thalinomics and being pro-business versus pro-crony. The year before it was about nudge theory and behavioural economics. Could it be about Covidonomics this year?
In May 2020, when finance minister Nirmala Sitharaman first announced a raft of agriculture reform measures, many saw these as the Narendra Modi government’s demonstration of its intent to walk the talk on marshalling reforms that promised to tilt the terms in the favour of farmers.
Structurally, these moves were predicated on legislative changes. These required an overhaul of laws that, in many ways, provided the oxygen to vested interests—unscrupulous middlemen to local political strongmen—that kept previous regulations alive.
The three laws that the Modi government legislated— the Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020; Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020, and the Essential Commodities (Amendment) Act, 2020—seek to facilitate barrier-free trade of farm produce outside the markets notified under the various state Agriculture Produce Market Committees (APMC) laws.
They also define a framework for contract-farming and impose stock limits on agricultural produce only if there is a sharp increase in retail prices.
Over the past several years most political parties have pushed for such reforms, which shows how their current opposition to the farm laws is primarily driven by political convenience and opportunism, rather than on merit.
The Economic Survey may reinforce the need for these reforms that have been met with strong protests by farmers.