Expert Speak India Matters
Published on Jan 29, 2021
It gives indications of a fiscal expansion in Budget 2021-22.
Economic Survey 2020-21 shapes a new India-centric policy narrative There are two broad policy points the Economic Survey 2020-21 bridges. On the one side, it shows how well India has withstood the economic shock due to COVID-19, the virus originating from Wuhan. This it does in absolute terms (within India) as well as relative (comparing with global economies). It tells serial sceptics to calm down and read the data within the constraints of a poor economy. On the other side, the Survey prepares for what lies ahead. Arguing strongly for economic growth as a prime reducer of poverty, it contexts the India story for a rapid rise, and draws the broad contours of policy directions ahead. Above all, the Survey is a delightful mix of data, analyses and policy responses across various ideas such as healthcare, reforms, regulatory forbearance and a controversial chapter on credit ratings. COVID-19 being the once-in-a-century Black Swan, India was expected to have 300 million cases and several thousands of deaths. That did not happen. The stringent lockdown, from 25 March 2020 to 31 May 2020, which can be seen as “short-term pain, long-term gain” was needed to break the chain of the spread. The underlying idea, the Survey states, was a “humane principle that while GDP growth will come back, human lives once lost cannot be brought back.” The resultant fiscal decisions were in tune with common sense and have worked, the Survey states:

On the demand side, India’s policies have been calibrated to ensure that the accelerator is slowly pushed down only when while the brakes are being removed on economic activities. A public investment programme centred around the National Infrastructure Pipeline is likely to accelerate the demand push and further the recovery.

Even though different states executed the lockdown in different ways and the impact on the economy harsh, the worst seems to be over and a V-shaped recovery — from a 23.9 percent contraction in the first quarter to 7.5 percent contraction in the second — lies ahead:

The stringency of the lockdowns at the state level were precisely because of the anticipated difference between actual and estimated cases or deaths. Given the enormous uncertainty that policy makers faced when making the lockdown decisions, such precise expectations during the lockdown is indeed extremely far-fetched. Therefore, the evidence that has been documented indeed shows convincingly that the stringent lockdown saved lives and supported a V-shaped recovery across all the economic indicators.

If a crisis brings out the best in India, and in the economic context — structural reforms — then the year of the pandemic played to the 1991 reforms script. According to the Survey, “India is the only country to have undertaken structural reforms on the supply-side at the initial stages of the pandemic.” These reforms happened across 15 sectors under three heads:

• Deregulation and liberalisation of sectors — agriculture, MSMEs, labour, business process outsourcing, power, PSUs, and minerals.

• Strengthening productive capacity — industry, space, defence, education, and social infrastructure.

• Ease of doing business — financial markets, corporates, and administration.

The base for all these reforms has been created over years and decades. Farm laws, for instance, have seen debate, discussions and reports over two decades, which the Survey lists out. These have been across political parties. On its part, the government has used the downtime of the pandemic to take what are termed as “bold” reforms. That vested interests are attempting to stall these reforms and political parties that were pushing for them earlier have made a sharp U-turn is disappointing. This is still a work in progress, with violence being used to overpower debate. What is counter-intuitive and the most creative chapter in the Survey is that it calls out the almost racist leanings of global rating agencies. Backed by hard data, the Survey captures the dissonance rating agencies have shown when emerging economies, India and China, have attained large sizes. Both have been placed on the same biased paper:

Never in history has the fifth largest economy in the world been rated a BBB-! Since 1994, the only times that the sovereign credit ratings of the fifth largest economy in current US$ terms has precipitously declined, has been when emerging giants China and India have come to occupy the position.


A similar trend is seen in PPP current international $ terms. Since 1994, the only times that the sovereign credit ratings of the third largest economy in PPP terms has steeply declined, has been when emerging giants China and India have become the third largest economy.

It may be seen that sovereign credit ratings of the fifth largest economy in current US$ terms and that of the third largest economy in PPP $, dip sharply with the entry of China and India in this category. The Survey argues, with data, that the ratings given to India reflect neither the country’s fundamentals nor its willingness and ability to pay back its debt. The ratings affected neither the movement of equity markets nor of the debt paper: “India’s fiscal policy, therefore, must not remain beholden to a noisy/biased measure of India’s fundamentals and should instead reflect Gurudev Rabindranath Thakur’s sentiment of a mind without fear.” As far as the future goes, the Survey points out that India’s fiscal spending policy has been “calibrated to ensure that the accelerator is slowly pushed down only when while the brakes are being removed on economic activities.” Will that show up in Budget 2021-2022? Very likely. Now that the vaccines are here, government spending is expected to rise, particularly in infrastructure sectors. Once that starts, private investment is expected to pick up. Based on IMF estimates, the Survey projects GDP growth rate for FY 2022 to be 11.5 percent — the world’s fastest. And with it, the Survey shapes a new India narrative.


The Economic Survey 2020-21 Press Conference by Chief Economic Advisor Dr K.V. Subramanian
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Gautam Chikermane

Gautam Chikermane

Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...

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