Barbell Strategy, Safety Nets & the Agile Framework: India’s response to the pandemic has been unique and it consists of “Barbell Strategy, Safety Nets & the Agile Framework.”
Agile is the central theme of the Economic Survey for Fiscal Year 2021-22.
State of Economy
Following a contraction of 7.3% in 2020-21, the Indian economy is expected to grow by 9.2% in real terms in 2021-22 (according to initial advanced projections).
GDP is expected to grow in real terms by 8-8.5% in 2022-23.
In 2022-23, a combination of large foreign exchange reserves, continued foreign direct investment, and expanding export revenues will provide an effective cushion against a potential global liquidity withdrawal.
The "second wave's" economic effect was significantly less than the full lockdown in 2020-21, but the health consequences were far more severe.
The Indian government's unique reaction included safety-nets to soften the impact on vulnerable sectors of society and the business sector, a major increase in capital investment to promote growth, and supply-side reforms to ensure long-term expansion.
Fiscal Developments
Sustained revenue collection and a targeted expenditure policy has contained the Fiscal Deficit for April to November, 2021 at 46.2% of Budget Estimates.
Gross Tax Revenue registers a growth of over 50% during April to November, 2021 in YoY terms.
This performance is strong compared to pre-pandemic levels of 2019-2020 also.
During April-November 2021, Capex (Capital Expenditure) has grown by 13.5% (YoY) with focus on infrastructure-intensive sectors.
With the enhanced borrowings on account of Covid-19, the Central Government debt has gone up from 49.1% of GDP in 2019-20 to 59.3% of GDP in 2020-21, but is expected to follow a declining trajectory with the recovery of the economy.
Stressing the need to continue the focus on capital expenditure, it has indicated that the government is on course to achieve the fiscal deficit target of 6.8% of GDP for the current year (2021-22).
External Sectors
After China, Japan, and Switzerland, India was the world's fourth largest FX (Foreign Exchange) reserve holding as of the end of November 2021.
Despite dismal tourism income, there was a large increase in net services, with both receipts and payments surpassing pre-pandemic levels.
During the current fiscal year, India's merchandise exports and imports reboundedrapidly, surpassing pre-Covid levels.
Net capital flows increased to US$ 65.6 billion in the first half of 2021-22, owing to ongoing foreign investment inflows, a resurgence in net external commercial borrowings, increased banking capital, and additional Special Drawing Rights (SDR) allocation.
India's external debt increased to US$ 593.1 billion at the end of September 2021, up from US$ 556.8 billion in 2020-21, as a result of the IMF's increased Special Drawing Right (SDR) allocation and greater commercial borrowings.
Monetary Management and Financial Intermediation
Indian markets outperformed counterparts among key developing market economies from April to December 2021. The system's liquidity remained in surplus.
In 2021-22, the repo rate was maintained at 4%.
To provide additional liquidity, the RBI implemented several initiatives such as the G-Sec Acquisition Program and Special Long-Term Repo Operations.
Scheduled Commercial Banks (SCBs) had a Gross Non-Performing Advances ratio of 6.9% at the end of September 2021, down from 11.2% at the end of 2017-18.
Prices and Inflation
The average headline CPI-Combined inflation reduced to 5.2% in 2021-22 (April- December) from 6.6% in 2020-21.
Food inflation eased, resulting in a decrease in retail inflation.
Throughout the year, effective supply-side management kept the prices of most important commodities under control.
To keep the price of pulses and edible oils from rising too high, proactive measures were implemented.
The reduction in national excise and subsequent reductions in Value Added Tax by most states helped to bring down the price of gasoline and diesel.
Wholesale inflation, as measured by the Wholesale Price Index (WPI), increased to 12.5% in 2021-22. (April to December). This has been attributed to: Previous year's low base, increase in economic activity, sharp rise in the price of crude oil and other imported commodities on the worldwide market, and high freight costs.
Difference between CPI-C and WPI Inflation: The difference rose to 9.6% points in May 2020. However, this year's disparity reversed, with retail inflation sliding 8.0% points behind wholesale inflation in December 2021.
This difference can be explained by factors such as: Variations related to the base effect, differences in the scope and coverage of the two indices, price collections, items covered, commodity weights, and the WPI being more sensitive to cost-push inflation driven by imported inputs.
As the base impact in WPI gradually fades, the disparity between CPI-C and WPI is likely to shrink.
Sustainable Development and Climate Change
India's total score on the NITI Aayog SDG India Index and Dashboard improved to 66 in 2020-21 up from 60 in 2019-20 and 57 in 2018-19.
India possesses the tenth largest forest area in the world. From 2010 to 2020, India placed third in the world in terms of increasing forest acreage.
Accounting for 2% of the world’s total forest area, the forests covered 24% of India’s total geographical area, in 2020.
The Plastic Waste Management Amendment Rules, 2021, were notified in August 2021, with the goal of eliminating single-use plastic by 2022.
Notification on Extended Producer Responsibility for plastic packaging was drafted.
The compliance rate of Grossly Polluting Industries (GPIs) in the Ganga main stem and its tributaries increased from 39% in 2017 to 81% in 2020.
As part of the national declaration presented at the 26th Conference of Parties (COP 26) in Glasgow in November 2021, the Prime Minister declared aggressive targets to be met by 2030 to allow for further emissions reductions.
The need of launching the one-word movement 'LIFE' (Lifestyle for Environment), which promotes thoughtful and purposeful consumption over mindless and destructive consumption, was emphasized.
Agriculture and Food Management
Agriculture has witnessed strong growth in the last two years, accounting for 18.8% of the country's Gross Value Added (GVA) in 2021-22, with growth of 3.6% in 2020-21 and 3.9% in 2021-22.
Crop diversity is aided by the Minimum Support Price (MSP) policy.
In the most recent Situation Assessment Survey (SAS), net earnings from crop output grew by 22.6% as compared to the 2014 SAS Report.
Agriculture's allied areas, including as animal husbandry, dairying, and fisheries, are rapidly developing as high-growth sectors and important drivers of total growth in the agricultural sector.
Over the five years ending in 2019-20, the livestock sector grew at a CAGR of 8.15%. It has been a consistent source of revenue for farming households, contributing for around 15% of their monthly income on average.
Food processing is made easier by the government through infrastructure development, subsidised transportation, and support for the formalisation of micro food businesses.
India has one of the world's largest food management programmes.
Through programmes such as the PM Gareeb Kalyan Yojana (PMGKY), the government has expanded the coverage of the food security network.
Industry and Infrastructure
During April-November 2021, the Index of Industrial Production (IIP) increased by 17.4% YoY, compared to a contraction of 15.3% in April-November 2020.
Capital expenditure for the Indian railways has increased to Rs. 155,181 crores in 2020-21 from an average annual of Rs. 45,980 crores during 2009-14 and it has been budgeted to further increase to Rs. 215,058 crores in 2021-22 – a five times increase in comparison to the 2014 level.
Extent of road construction per day increased substantially in 2020-21 to 36.5 Kms per day from 28 Kms per day in 2019-20 – a rise of 30.4%.
Despite the pandemic, the net profit to sales ratio of large corporations reached an all-time high of 10.6% in the July-September quarter of 2021-22 (according to RBI Study).
The introduction of the Production Linked Incentive (PLI) plan, massive infrastructure boosts - both physical and digital, as well as steps to minimise transaction costs and increase ease of doing business— all will help to speed up the recovery of the economy.
Services
In the July-September quarter of 2021-22, the GVA of services surpassed the pre-pandemic level; nevertheless, the GVA of contact intensive sectors such as commerce, transportation, and others remained below the pre-pandemic level.
In 2021-22, the whole service sector GVA is predicted to expand by 8.2%.
Rail freight crossed its pre-pandemic level between April-December 2021, while air freight and port traffic virtually reached pre-pandemic levels, and domestic air and rail passenger traffic is gradually increasing — indicating that the second wave's impact was far more subdued than the first wave's.
The service sector accounted for about 54% of total FDI inflows into India in the first half of 2021-22.
The removal of telecom rules in the IT-BPO industry and the opening up of the space sector to private companies are two major government changes.
After the United States and China, India has become the world's third largest start-up ecosystem. From 733 in 2016-17, the number of new recognized start-ups climbed to over 14000 in 2021-22.
In 2021, 44 Indian start-ups earned unicorn status, bringing the total number of unicorns to 83, the majority of which will be in the services sector.
Social Infrastructure and Employment
With the recovery of the economy, employment statistics in the last quarter of 2020-21 returned to pre-pandemic levels.
According to data from the quarterly Periodic Labour Force Survey (PFLS) up to March 2021, employment in the pandemic-affected urban sector has nearly restored to pre-pandemic levels.
According to Employees Provident Fund Organisation (EPFO) data, job formalisation continued throughout the second Covid wave, with the negative impact of Covid on work formalisation being substantially smaller than during the first Covidwave.
The proportion of GDP spent on social services (health, education, and others) by the Centre and States climbed from 6.2% in 2014-15 to 8.6% in 2021-22 (BE).
According to the National Family Health Survey 5:
The total fertility rate (TFR) decreased from 2.2 in 2015-16 to 2 in 2019-21.
Infant Mortality Rate (IMR), under-five mortality rate, and institutional births all improved in 2019-21 over 2015-16.
83 districts have been designated as 'Har Ghar Jal' districts under the Jal Jeevan Mission (JJM).
Funding for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS) has been increased to create a cushion for unorganised labour in rural regions throughout the epidemic.
India is among the few countries producing Covid vaccines. The country started with two made in India Covid vaccines.
In line with India’s vision of Atmanirbhar Bharat, India’s first domestic Covid -19 vaccine, Whole Virion Inactivated Coronavirus Vaccine (COVAXIN), was developed and manufactured by Bharat Biotech International Limited in collaboration with National Institute of Virology of Indian Council of Medical Research (ICMR).
The progress of vaccination should be seen not just as a health response indicator, but also as a buffer against economic disruptions caused by repeated pandemic waves.
Sector Reforms
Instead of relying on demand management, India has been concentrating on reforms on the supply-side, such as:
Deregulation of numerous sectors
Simplification of processes
Removal of legacy issues like ‘retrospective tax’
Privatisation
These are a few of the major reforms in different sectors:
Over a four-year period from 2021-22 to 2024-25, the Central Government's key assets have a total monetisation potential of Rs. 6 lakh crore.
In the telecom industry, 100% FDI via the automated route is permissible.
Setting up of Production Linked Incentive (PLI) schemes for 13 sectors including Automobile, Telecom and pharmaceuticals drugs.
Increasing private sector engagement in conventional satellite communication and remote sensing industries by liberalizing them.
The automatic route increased FDI in the defence sector by 74%, while the government route increased it by 100%.
Deposit insurance has been enhanced per depositor per bank from Rs. 1 lakh to Rs. 5 lakh.
