Survey pegs growth at 8-8.5 in 2022-23

• The Economic Survey for 2021-22, tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha, expects the GDP to grow by 9.2% this year and 8% to 8.5% in 2022-23,
• Newly appointed Chief Economic Advisor V. Anantha Nageshwaran termed the 8-8.5% GDP growth estimate for the coming year a conservative projection.

Context

• While the 9.2% growth estimate for 2021-22 suggests a recovery above the pre-pandemic level of 2019-20 by 1.3%, private consumption and segments such as travel, trade and hotels are yet to fully recover.
• The stop-start nature of repeated pandemic waves makes it especially difficult for these sub-sectors to gather momentum.

Some presumptions

• Forecast assumes oil prices at $70-75.
• No pandemic disruptions,
• Monsoon will be normal,
• Withdrawal of global liquidity by major central banks will be broadly orderly.

Survey’s growth estimates

• 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.
• There would be a pick-up in private sector investment with the financial system in a good position to provide support to the revival of the economy.
• Survey highlighted that the country’s macroeconomic stability indicators on the external front, fiscal front as well as the financial sector health and inflation, were well-placed to take on the challenges of 2022-23.
• Latest advance estimates suggest full recovery of all components on the demand side in 2021-22 except for private consumption.

Investment recovery

• The country’s investment to GDP ratio had hit 29.6% in 2021-22, the highest level in seven years,
• This will result in capital formation and quicken the ‘virtuous cycle of growth via capex and infrastructure spending 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.

Inflation & Current account worries

• India does need to be wary of imported inflation, especially from elevated global energy prices.
• The double-digit wholesale price inflation in recent months would ‘even out’.
• An equally strong recovery was seen in imports, rendering India’s net exports negative for the first half of the year, from a surplus in 2020-21.
• Elevated global commodity prices, revival in real economic activity driving higher domestic demand and growing uncertainty surrounding capital inflows may widen current account deficit further during the second half of the year.
• India has recorded a modest current account deficit of 0.2% in the first half, but robust capital flows in the form of continued inflow of foreign investment were sufficient to finance it.

Positive Nodes

• The Atma Nirbhar Bharat approach marks ‘a return to old school protectionism’.
• The focus on economic resilience is a pragmatic recognition of the vagaries of international supply chains.