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Economic Survey says all is well. So where’s the need for a fiscal stimulus?

The Economic Survey is upbeat on consumption and investment rising. It has projected FY2022-23 GDP growth at 8-8.5 percent 

January 31, 2022 / 03:39 PM IST
Finance minister Nirmala Sitharaman tabled the Economic Survey 2022 on January 31, soon after President’s address to both Houses of Parliament. The survey, presented a day before the Union Budget, details the state of economy and reforms that should be undertaken to accelerate growth. Here are the key highlights of the report. (Image: News18)

Finance minister Nirmala Sitharaman tabled the Economic Survey 2022 on January 31, soon after President’s address to both Houses of Parliament. The survey, presented a day before the Union Budget, details the state of economy and reforms that should be undertaken to accelerate growth. Here are the key highlights of the report. (Image: News18)

This year’s economic survey doesn’t say a lot about economic prospects for 2022-23. But it’s pretty confident the Indian economy will do well, with a growth rate of 8-8.5 percent.

Several economists have expressed concerns over consumption, arguing that the incomes of the poor have been badly affected by the pandemic. The Economic Survey has no such qualms. It says, ‘Private consumption is poised to see stronger recovery with rapid coverage in vaccination and faster normalisation of economic activity.’

What about investment demand, sorely needed for sustainable growth? Here too the Survey is upbeat. It says, ‘While private investment recovery is still at a nascent stage, there are many signals which indicate that India is poised for stronger investment. The number of private investment projects under implementation in manufacturing sector has been rising over the years. Companies hitting record profits in recent quarters and mobilization of risk capital bode well for acceleration in private investment. A sturdy and cleaned-up banking sector stands ready to support private investment adequately. Expected increase in private consumption levels will propel capacity utilisation, thereby fuelling private investment activity. RBI’s latest Industrial Outlook Survey results indicate rising optimism of investors and expansion in production in the upcoming quarters.’ No worries there.

Could unemployment be a problem? The Survey cites EPFO data and says, ‘the monthly net addition in subscriptions during 2021 has not only been higher than the corresponding monthly values in 2020, but they have also surpassed the levels of the corresponding months during pre-pandemic year 2019. This points to the formalisation of the job markets as well as new hiring.’

But don’t the huge numbers still opting for the rural employment guarantee programme signal rural unemployment? The Survey concedes that ‘the demand at an aggregate level still seems to be above the pre-pandemic levels of 2019.’ But it points out that the demand for MGNREGA work is coming not from the states that send migrant workers, which should have been the case had migrant workers gone back to their homes for lack of jobs---instead, the demand is from the states that receive migrant workers. It says more studies need to be done to solve this knotty problem.

In any case, the plethora of government programmes aimed at supporting the bottom of the pyramid should take care of any issues. The survey cites the improvement in India’s overall score on the NITI Aayog SDG (Sustainable Development Goals) India Index & Dashboard even in the pandemic-hit 2020-21 year. It said that improvement was seen in the following goals: good health and well-being, clean water and sanitation, affordable and clean energy, reduced inequalities, sustainable cities and communities, responsible consumption and production, life on land and peace, justice, and strong institutions.

Finally, what does all this mean for overall growth in 2022-23? The survey says, ‘Growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending. The year ahead is also well poised for a pick-up in private sector investment with the financial system in a good position to provide support to the revival of the economy.’

Will the withdrawal of liquidity by central banks in the developed economies and the end of free money have an adverse impact? The survey says: ‘The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide an adequate buffer against possible global liquidity tapering in 2022-23.’ Further, it adds, ‘the Indian economy is well placed to take on the challenges of 2022-23.’

The question that follows from this cheery and confident assessment of the economic outlook is this: Where then is the need for another fiscal stimulus in the 2022-23 budget? Should the budget instead not focus on fiscal consolidation? Especially since the survey says, ‘India does need to be wary of imported inflation, especially from elevated global energy prices’?

 

 
Manas Chakravarty