Survey paints an optimistic picture of macros
- The Survey expects a V-shaped recovery in the Indian economy triggered by a bounce in the services sector and a fiscal boost to consumption and investments. The Survey feels that high frequency data points like power demand, steel consumption and GST collections hint at a V-shaped recovery.
- Indian GDP to contract by 7.7% in FY21. Interestingly, agriculture will grow at 3.4% but industry will contract by 9.6% and services by 8.8%. These were the worst hit by the pandemic and the fallout.
- India expects to end FY21 with current account surplus of 2% of GDP and record FPI flows into India in excess of Rs200,000cr. The Survey has highlighted that the combination of bold stimulus and early attack on COVID helped Indian economy recover.
- The survey has highlighted that fiscal deficit could stretch beyond 7% of GDP but that is small price to pay for reviving the engine of growth. The focus in the next 2 years should remain growth over fiscal prudence.
Apart from macro data on GDP, core sector and IIP as well as other high frequency points, the survey also focuses on how strategy made a big difference in the current fiscal year.
- The survey pointed out that the entire budget allocation for defence has been utilized with no surplus being returned to the government. This has helped spruce up defence capabilities and also enhanced security in tough times.
- Product Linked Incentives or PLI scheme worth Rs146,000cr to integrate India with global supply chain. The survey points that the offshoot of PLI is the Atma Nirbhar program which will generate domestic output and jobs.
- The survey has highlighted the importance of infrastructure in future growth and in reducing costs of doing business. The survey has pointed that infrastructure has strong externalities and hence downstream benefits will have a multiplier effect.
- The survey has called upon global rating agencies like Moody’s, S&P and Fitch to evolve a methodology of rating that is less subjective. The survey has also pointed that the current rating model does not capture nuances of Indian economic story.
- In a cautionary word, the Survey has pointed that Indian COVID afflictions were just over one crore. It was feared that the numbers could be in multiples of crores but timely action and extensive lockdowns saved more than 37 lakh afflictions and 1 lakh lives.
- The survey has rightly exhorted the government to improve spending on healthcare. The current allocation is just about 1% of GDP. The survey has called upon the government to immediately increase the limit to 2.5% to 3% of GDP on a sustained basis.
- Notwithstanding the current stalemate, the survey has highlighted the capacity of the Farm Bill to free up markets. Direct access to markets, doing away with middlemen and the ability to sell forward will give much greater price security and stability to small and marginal farmers. The survey highlighted that 85% of Indian farmers got a raw deal from the current APMC model.
- The survey also dwelt at length on the inter-state disparities in growth. Access to food, clothing and shelter had improved vastly between 2012 and 2018. But the benefits were pronounced in states like Kerala, Punjab, Haryana and Gujarat. The improvement lagged in states like Odisha, Jharkhand, West Bengal and Tripura.
- The survey called on businesses to not take regulatory forbearance for granted. To quote, “ Regulatory forbearance is an emergency medicine, not staple diet”. It has cited the example of how extended regulatory forbearance in the US created problems like asset inflation, fall in interest rates etc.
- The survey has focused on the tough business environment in India. It takes 1,600 days to wind-up a company in India against 128 days in Singapore. This is a classic example of too much red tape delaying tasks and impacting India’s external competiveness.
- The survey points out that the Pradhan Mantri Jan Arogya Yojana (PM-JAY) launched in 2018 to provide healthcare access to the most vulnerable sections has had huge positive impact. For example, median health, health cover and reproductive health improved while infant mortality reduced in Bihar compared to West Bengal.