The Economic Survey presented ahead of the Budget gives a glimpse of the year gone by and the key takeaways for the coming fiscal. In India, the Economic Survey assumes importance as it sets the tone for the Union Budget
. The Economic Survey 2021-22 was exactly that; a review of the past year with little by way of strategic outline. Hopefully, these strategic outlines will come out more clearly in the Union Budget which will be announced on Tuesday 01st February 2022.
The Economic Survey
2021-22 was prepared at a time when India did not have a full-time Chief Economic Advisors (CEA). Mr. V Anantha Nageswaran was appointed the CEA only on 27th January, by which time the Economic Survey was already done and sealed. Over the last 4 years, the Economic Survey has been a more interesting document with a lot more of futuristic pronouncements and pictorial embellishments. It remains to be seen if the new CEA continues with that practice from next year or reverts to the good old model.
Major takeaways from the Economic Survey 2021-22
A quick look at the survey tells us that the Indian economy has shown a lot of resilience in the year 2021-22. This was despite the challenges of the second round of COVID pandemic and perhaps even a third-round known as the Omicron variant. But the high-frequency data and the long term perspective data, on which the Economic Survey is based, hints at a high level of resilience shown by the Indian economy as it emerged from the pandemic lows.
• For the financial year 2022-23, the Survey has pegged GDP growth in the range of 8.00%-8.50%. This is lower than the 9.2% advanced estimates for FY22 put out by MOSPI on 07th January 2022. This is expected to have been driven by robust agriculture and a sharp revival in industry and also in the services segment.
• However, an important assumption in the FY23 growth projection of 8-8.5% is that the crude oil prices would hover in the range of $70-75/bbl. That is much lower than the current price levels of $90/bbl in the Brent market. That is a reasonable assumption as supply lines are not going to remain quiet for long with Brent prices at a 7-year high.
• Agriculture has been the most resilient segment growing strong through the pandemic. It is expected to top up its 3.6% growth in FY21 with 3.9% in FY22. This is likely to be helped by the crop diversification towards oilseeds, pulses, horticulture and marine farming. India has already reported record exports in marine farming this year.
• The industrial growth or IIP for the full year FY22 is pegged by the Economic Survey at 11.8%. This will ensure that India industrial growth finally gets back to pre-COVID levels. However, rising input costs remain a concern, as acknowledged by the Economic Survey itself. In fact, the Survey has warned that imported inflation could pose a serious risk.
• The encouraging news is that consumption is expected to have grown in FY22. The not-so encouraging news is that most of the growth in consumption is being driven by government spending. Government driven consumption is expected to grow 7.6% in FY22; much higher than pre-pandemic levels. That means; private consumption has still lagged due to the uncertainty caused by the pandemic.
• The Economic Survey has warned about the resurgence of inflation in FY23, especially from imported inflation. The inflation levels have been high globally and the Survey has indicated that it may not abate much in FY23. It is clearly a combination of supply chain constraints and high commodity prices causing the imported inflation syndrome.
• The good news is that the services sector is expected to grow at 8.2% in FY22 as per the Economic Survey. However, it is the composition that matters. The growth triggers will still come from social services, financial services and other support services. However, the recovery in the contact intensive segments like trade, transport, tourism and travel will still be muted in FY22 and probably in part of FY23 also.
• Total exports for FY22 are expected to grow 16.5% yoy while total imports will grow 29% on yoy basis. That is likely to result in widening of the trade deficit to around $200 billion for FY22. In terms of export growth, the container shortage still continues and on the import side, the rising imports of oil and gold is a tad concerning.
• Start-ups and the emergence of Unicorns and Decacorns have been the big story through the tough pandemic period. Since April 2019, the start-up hubs of Delhi-NCR and Bengaluru added 5,000 start-ups and 4,514 start-ups respectively. The year 2021 alone saw the emergence of 44 Unicorns (start-ups valued at above $1 billion).
• Finally, a quick look at the individual retail investor; who has taken to equities in a big way. A total of 2.21 crore demat accounts were added between April and November 2021, while individuals now account for 44.7% of NSE daily turnover. However, individuals have continued to be wary about taking on EMI loans amidst the pandemic uncertainty.
To sum it up, the triggers for a recovery are there and retail level consumption needs to pick up. Hopefully, that should be the story of the next Economic Survey.