Ever since the world became engulfed in the worst pandemic in a century, one question has loomed large – ‘When will this get over?’ The Economic Survey 2020-21 answers this question for India. The Survey paints a clear picture of the road to recovery.
India’s GDP plunged to a negative -23.9 per cent in the first quarter of 2020-21. Since then, it has witnessed a dramatic surge for a V-shaped recovery, with a Q2 decline of -7.5 per cent and recovery across all key indicators.
The Survey projects real GDP growth of 11 per cent in 2021-22 with nominal GDP growth of 15.4 per cent. This is in line with the International Monetary Fund’s (IMF) estimate of 11.5 per cent real GDP growth in 2021-22. The nominal GDP growth shall keep the fiscal deficit to GDP ratio in control. The Confederation of Indian Industry (CII) believes that the recovery should be supported by higher investments so that the multiplier effect is visible in the forthcoming year.
On an optimistic note, the Survey mentions the sharp rise in government expenditure with a capital expenditure of Rs 3.17 lakh crore for April-December 2020, a 24 per cent rise over the corresponding period in the previous year. The Y-o-Y growth of the total expenditure has also observed an 11 per cent rise in the same period.
The Survey notes, “Adopting a counter cyclical policy by expanding the Government expenditure – both consumption and investment – will support the GDP and minimise the output gap.” Higher government spending on infrastructure, healthcare, education, defence, and sustainability would lead to the creation of jobs, demand and boost private investment, as per the priorities outlined by CII.
The survey also highlights that in the Indian context, economic growth and inequality converge in terms of their effects on socio-economic indicators. Through various parameters, it concludes that inequality and income per capita do not diverge in their relationship with socio-economic outcomes in India. However, it mentions the need for India to focus on growth, i.e., growing the pie, which has also been the central theme of CII’s pre-Budget recommendations.
COVID-19 has brought the healthcare sector to the centre stage, and the survey calls for increased prioritization of healthcare in the Central and state Budgets. CII has been advocating for an increase in healthcare spending and has called for an increase in government spending on healthcare to 3 per cent by 2025. The Survey highlights that an increase in public health expenditure to 3 per cent of the GDP can reduce the out of pocket expenditure to 30 per cent from the current 60 per cent. CII believes that increased public healthcare expenditure would not only meet the healthcare needs of its citizens but also make India an attractive FDI destination.
The Survey highlights the Pradhan Mantri Garib Kalyan Package (PMGKP) insurance scheme for health workers fighting COVID-19 which provides an insurance cover of Rs 50 lakh to healthcare providers, including community health workers. The economic survey also highlights the significance of Pradhan Mantri Jan Arogya Yojana (PM-JAY).
It mentions that the PM-JAY enhanced health insurance coverage as the proportion of households with health insurance increased by 54 per cent for the states that implemented PM-JAY while falling by 10 per cent in states that did not. It also highlights the significant improvements in several health outcomes like infant mortality rate and under-five mortality rate. CII has called for implementing PM-JAY in all states to increase the insurance cover.
CII has been advocating for the simplification of regulations and repeal of archaic regulations. The Economic Survey points out this and acknowledges that over-regulation is the root cause of the problems of India’s administrative processes. It calls for simple regulations combined with a transparent decision-making process. The Government should move towards effective monitoring and supervision and allow for self-certification or third-party certification for regulatory compliances by industry instead of conducting the certifications that lead to various time and cost overrun issues.
Economies across the globe have shown regulatory forbearance due to the pandemic. However, the Survey cautions that forbearance should not become the staple diet. It is important to understand that the COVID-induced slowdown has adversely impacted the industry, and its stressed assets should not be considered as bad assets. Certain flexibility is required until the economy normalizes again.
The Survey also calls for strengthening the legal infrastructure for the recovery of loans, which is in line with CII’s advocacy for separate benches and strengthening the judicial infrastructure for commercial disputes to address the backlogs and delays in cases.
In the recently launched Global Innovation Index 2020 Report, India was ranked 48 amongst 131 innovation economies of the world. This is a considerable improvement from its rank in the 2014 report at 76. The Survey acknowledges that for India to become an innovation leader, greater thrust on innovation is required.
As India carries out the world’s largest vaccination drive, the Survey hopes that it would bring a robust recovery in the services sector, private consumption, and investment. It mentions that the Index of Industrial Production (IIP) and eight-core sector index have further inched up to pre-COVID levels.
As India expects to witness a current account surplus during the current financial year after a gap of 17 years and projected real GDP growth of 11 per cent in 2021-22, we are certainly on the road to recovery. The worst is behind us!