Economic Survey 2021-22: Ch. 1 STATE OF THE ECONOMY

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  • The Economic Survey for 2021-22 tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha expects India's GDP to grow by 9.2% this year, in line with recent official estimates, and 8% to 8.5% in 2022-23.
  • Stressing that India's overall macro-economic stability indicators show the economy is well placed to take on the challenges of 2022-23, the Survey argued that 'one of the reasons' for this is the government's unique response strategy that didn't 'pre-commit to a rigid response' but 'opted to use safety-nets for vulnerable sections' based on information.
    • “Growth in 2022-23 will be supported by widespread vaccine coveragegains from supply-side reforms and easing of regulationsrobust 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,” the Survey projected.
  • The Survey's 8%-8.5% GDP growth estimate for the coming year is based on the assumption that 'there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, oil prices will be in the range of US$70-$75/bbl, and global supply chain disruptions will steadily ease over the course of the year'.
  • India does need to be wary of imported inflation, especially from elevated global energy prices,” the Survey has noted, even as it suggests that the double-digit wholesale price inflation in recent months will 'even out'.
  • The Survey acknowledges the risks that have emerged at the time it was being written, such as the new COVID-19 with the Omicron variant sweeping across the world, inflation jumping up in most countries, and the cycle of liquidity withdrawal being initiated by major central banks.
  • It highlighted that India's macro-economic stability indicators on the external front, fiscal front as well as financial sector health and inflation, are well-placed to take on the challenges of 2022- 23.
  • Robust export growth and availability of fiscal space to ramp up capital spending to support growth next fiscal.
  • Govt. finances to witness consolidation in 2021-22, after an uptick in deficit and debt indicators during pandemic year FY21.
  • The survey says that India transformed from being among 'Fragile Five' nations to the 4th largest forex reserve, giving policy room for manoeuvring.
  • India’s investment to GDP ratio has hit 29.6% in 2021-22, the highest level in seven years, the Survey said, attributing this capital formation to the Government’s policy thrust on quickening the ‘virtuous cycle of growth via Capex and infrastructure spending’ has increased capital formation in the economy.
  • “While private investment recovery is still at a nascent stage, there are many signals which indicate that India is poised for stronger investment,” it added, citing record corporate profits in recent quarters and high mobilisation of risk capital by firms.


  • Continuing pandemic with mutant variants, supply-chain disruptions, and a return of inflation in both advanced and emerging economies.
  • Likely withdrawal of liquidity by major central banks like Fed and associated capital flight.


  • The sustained recovery since the second half of 2020-21 with an expected GDP growth of 9.2 % in 2021-22
    • This surpasses the pre-COVID level of 2019-20.


    • Least impacted: It is estimated to grow 3.9 per cent in 2021-22 on top of 3.6 per cent and 4.3 per cent respectively in the previous two years
    • This sector now accounts for 18.8 per cent of GVA.
    • The area sown under Kharif and Rabi crops, and the production of wheat and rice has been steadily increasing over the years
    • The strong performance of the sector was supported by Government policies that ensured timely supplies of seed and fertilizers despite pandemic-related disruptions.
    • It was also helped by good monsoon rains.
    • After a downfall in 2020-2021 due to lockdown and supply chain issues, the sector rebounded by 11.8 per cent in this financial year.
    • This sector now accounts for 28.2 per cent of GVA.
    • Rising capital expenditure by the government on infrastructure and an uptick in the housing cycle has been responsible for reviving the construction sector.
    • This has allowed the consumption and production of steel and cement consumption to revert to pre-COVID levels.
    • Although the overall sector first contracted by 8.4 per cent in 2020-21 and then is estimated to grow by 8.2 per cent in 2021-22, it should be noted that there is a wide dispersion of performance by different sub-sectors.
    • Both the Finance/Real Estate and the Public Administration segments are now well above pre-COVID levels.
    • However, segments like Travel, Trade, and Hotels are yet to fully recover.
    • It should be added that the stop-start nature of repeated pandemic waves makes it especially difficult for these sub-sectors to gather momentum.
    • This sector contributes 53 % of GVA.


  • The demand side trends can be analyzed via the following;
    • Total consumption(Gov and Pvt), gross fixed capital formation, Export and Import
  • Of this, except for private consumption, everything else shows full recovery.


  • Total consumption is estimated to have grown by 7.0 per cent in 2021-22 with government consumption remaining the biggest contributor as in the previous year (Table 3).
  • Government consumption is estimated to grow by a strong 7.6 per cent surpassing pre-pandemic levels.’
  • Though private consumption hasn’t seen full recovery indications from increased UPI payments, IIP consumer durables, consumer sentiments from RBI’s consumer confidence survey indicate a better growth.


  • Largely driven by gov’s CAPEX and infrastructure spending since the private investment is in a nascent stage.
  • It is estimated to grow with an investment to GDP ratio of 29.7(highest since 2014).
  • RBI’s Industrial Outlook Survey results indicate rising optimism of investors and expansion in production in the upcoming quarters


  • India’s total exports are expected to grow by 16.5 per cent in 2021-22 surpassing pre-pandemic levels.
  • Imports also recovered strongly with the revival of domestic demand and a continuous rise in the price of imported crude and metals.
  • Imports are expected to grow by 29.4 per cent in 2021- 22 surpassing corresponding pre-pandemic levels.
  • Though we had a current account surplus in 2020-2021 driven by reduced imports and elevated exports, the economy is again back to a deficit state.
  • The imports are further expected to increase following the rise in demand and elevated global commodity prices.


  • A short term response to deal with uncertainty about the future flow of events.
  • These finds mentioned in last year’s economic survey and this year’s survey explains how it was implemented.
  • Under this strategy, a combination of safety nets for vulnerable sections and real-time information-based policy adjustment was brought into play to tackle the challenges posed by the pandemic.
  • By this, the government dumped India's conventional policy approach known as the Waterfall method in favour of the Barbell strategy as Covid spread its tentacles in the country.
  • The Waterfall approach — a policy mainstay during the Five-year plan era — involves a “detailed, initial assessment” and then making a rigid, upfront plan to tackle a problem.
  • In contrast, under the Barbell method, policy outcomes are assessed rapidly based on real-time information and adjusted incrementally.
  • In essence, the Barbell strategy, in contrast to the Waterfall one, takes into account a worse possibility initially and then calibrates the response step by step through a feedback loop.
  • The Barbell strategy is essentially the same as the widely-used framework known as the Agile Approach.
  • This approach is common in domains like technology development and project management.
  • The Waterfall method works on the principle that all aspects of a certain problem can be understood at the very beginning — which is why the survey said it was unfit to meet the very unusual, unforeseen exigencies triggered by the pandemic.
  • The efficient use of the Barbell strategy was also made possible by the easy availability of data now compared to the past. (Eg. GST, power consumptions, google data, Highway toll data etc)


  • Recognising extreme uncertainty associated with a ‘once-in-a-century’ pandemic, the Government opted for a careful mix of emergency support and economic policy actions to provide a cushion against pandemic induced shocks.
  • In early 2020, when the first wave of the pandemic was making its way around the world, the Government focused on saving lives through emergency policy actions like imposition of a stringent lockdown, testing.
  • Recognising that lockdowns and quarantines disrupt economic activity, the government quickly put in place economic safety nets (see table). This was combined with a rapid ramp-up of the vaccination programme.


  • In the last two years, Government leveraged an array of eighty HFIs representing industry, services, global trends, macro-stability indicators to gauge underlying state of the economy on a real-time basis.
    • These include electricity generation, scheduled domestic flights, volume/value of financial transactions, capital flows, etc.
  • While HFIs have the advantage of being real-time and frequent, they need to be used with care as each indicator provides a partial view of developments.
  • Moreover, the noise-to-signal ratio can be higher than for national accounts and other slower-moving data.
  • Thus, using HFIs for gauging trends in the economy is as much an art as a science.


  • Monetary policy since the outbreak of the pandemic was calibrated to provide a cushion and support growth, but carefully controlled in order to avoid the medium-term dislocations of excess liquidity
  • MPC has maintained the status quo on the policy repo rate keeping it unchanged at 4 per cent after a 115 bps cut in Feb-May 2020
  • The Marginal Standing Facility rate and the bank rate have also remained unchanged at 4.25 per cent and so has the reverse repo rate at 3.35 per cent since
  • The government gave financial support to MSMEs and other industries as a safety net viz a viz credit guarantee, moratorium on insolvency proceedings.
    • However, RBI and the Government have allowed some of the liquidity support to roll off and the insolvency process to resume as the economy has recovered.
    • It is important to do this as excess liquidity and a stalled insolvency process bring longer-term risks.


  • As discussed in the beginning the future threats that our economy faces are new variants, liquidity withdrawal by major central banks, rising inflation.
  • So in this light, we need to look at how resilient can be our economy is using the macroeconomic indicators.
  • It is said that history is the best textbook to predict the future.
  • So using the incidents of macroeconomic shakers – 2008-09 (Global Financial Crisis), 2012-13 (pre Taper Tantrum) will shed a light on how resilient we are to the pandemic induced troubles.


    • Despite all the disruptions caused by the global pandemic, India’s balance of payments remained in surplus throughout the last two years.
    • This allowed the Reserve Bank of India to keep accumulating foreign exchange reserves, which stands at US$634 billion on 31st December 2021).
    • This is equivalent to 13.2 months of imports and higher than the country’s external debt.
    • As of end-November 2021, India was the fourth-largest foreign exchange reserves holder in the world after China, Japan, and Switzerland.
    • A sizeable accretion in reserves led to an improvement in external vulnerability indicators such as foreign exchange reserves to total external debt, short-term debt to foreign exchange reserves, etc.
    • It is clear from the above table that India’s salient external sector sustainability indicators are strong and much improved as compared to what they were during the global financial crisis or taper episode of 2013.
      • For instance, the import cover and foreign exchange reserves are more than double now.
      • The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide a good buffer against any liquidity tapering/monetary policy normalisation in 2022-23.

    • In general, the fiscal and primary deficit is down because of sustained revenue collection and a targeted expenditure policy.
    • This implies that the Government has the fiscal capacity to maintain the support, and ramp up capital expenditure when required.
    • The strong revival in revenues also provides Government with fiscal space to provide additional support as well, if necessary.

    • Among major emerging market economies, Indian markets outperformed their peers in April-December 2021.
    • 89,066 crore was raised via 75 IPO issues in April- November 2021, much higher than in any year in the last decade.
    • The banking system is well-capitalized; Gross Non-Performing Advances (GNPA) and Net Non-Preforming (NNPA) ratio of Scheduled Commercial Banks (SCBs) continued to decline since 2018-19.
      • GNPA ratio of SCBs decreased from 7.5% at end-September 2020 to 6.9% at end-September 2021.
      • NNPA ratio of SCBs also declined from 6% at end of 2017-18 to 2.2% at end-September 2021.
      • Capital to risk-weighted asset ratio (CRAR) of SCBs increased from 15.84 % at end-September 2020 to 16.54% at end-September 2021.

    • During the beginning of the pandemic inflation was evident in CPI but during and after the second wave in 2021 the WPI shot up and CPI got down.
    • A detailed view of this will be provided in the 5th chapter.
  • Overall, macro-economic stability indicators suggest that the Indian economy is well-placed to take on the challenges of 2022-23
  • The survey talks about a few global supply-side disruptions.
    • They are delivery delays, container shortages, and semiconductor chip shortages.
    • Shipping container issue: production of the new containers has slowed since 2019 and high-cost
    • Semiconductor shortage: This led to low car sales which many mistook as a demanding fall.
      • The manufacturing of semiconductors requires a large amount of capital and has an average gestation period of 6-9 months.
      • Moreover, it has a fairly long production cycle of about 18-20 weeks.
  • Hence, any recovery from the supply chain disruptions will be a slow and costly affair.


  • Another distinguishing feature of India’s economic response has been an emphasis on supply-side reforms rather than a total reliance on demand management.
  • These supply-side reforms include deregulation of numerous sectors, simplification of processes, removal of legacy issues like ‘retrospective tax’, privatization, production-linked incentives and so on.

  • Even the sharp increase in capital spending by the Government can be seen as both demand and supply response as it creates infrastructure capacity for future growth
  • An important theme that has been discussed through the course of the Economic Survey is that of ‘process reforms’.
    • It is important to distinguish between deregulation and process reforms.
    • Deregulation relates to reducing or removing the role of government from a particular activity.
    • In contrast, process reforms broadly relate to simplification and smoothening of the process for activities where the government’s presence as a facilitator or regulator is necessary.
  • It is detailed in chapters 2,4 and 9


  • 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.
  • Thus, India’s GDP is projected to grow in real terms by 8.0-8.5 per cent in 2022-23.
  • The estimates show that India will be the fastest-growing economy in 2021,2022 and 2023.


  • Gross Non-Performing Advances (GNPA) ratio:
    • GNPA stands for gross non-performing assets.
    • It is an absolute amount.
    • It is nothing but the total value of gross non-performing assets
  • Net Non-Performing Assets (NNPA):
    • NNPA is obtained when the provisions made by the bank are subtracted from the gross NPAs.
    • Therefore NNPA gives the exact value of non-performing assets after the provisioning for the same.
  • Provisioning:
    • Under provisioning, banks have to set aside or provide funds to a prescribed percentage of their bad assets.
    • The percentage of bad assets that has to be ‘provided for’ is called the provisioning coverage ratio.
  • Monetary Policy Committee (MPC):
    • MPC is a six-member committee constituted by the Central Government (Section 45ZB of the amended RBI Act, 1934).
    • The policy interest rate required to achieve the inflation target is decided by the Monetary Policy Committee (MPC).
    • The MPC is required to meet at least four times a year.
    • The quorum for the meeting of the MPC is four members.
    • Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote.
  • Purchasing Managers’ Index (PMI):
    • It is an indicator of business activity- both in the manufacturing and services sectors.
    • It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
    • A figure above 50 denotes expansion in business activity.
      • Anything below 50 denotes contraction.
  • Index of Industrial Production (IIP):
    • It shows growth rates in different industry groups of the economy in a stipulated period of time.
    • It is computed and published by the National Statistics Office (NSO), Ministry of Statistics and Programme Implementation on a monthly basis.
  • Quantitative easing (QE):
    • QE is when a central bank buys long-term securities from its member banks.
    • By buying up these securities, the central bank adds new money to the economy; as a result of the influx, interest rates fall, making it easier for people to borrow.
  • Tapering:
    • Tapering is the incremental reversal of a central bank's quantitative easing strategy designed to boost economic growth.
    • Tapering is when a central bank reduces asset purchases when the economy has recovered sufficiently to no longer need a stimulus.


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