It's said that in economics, the majority is always wrong. The Economic Survey 2022, in an unshowy way, attempts to tell us how.
Tabled in the Parliament on Monday, the Survey, in a give-me-five tone glosses over the success of government's COVID-19 policy response and emphasises how supply-side measures pulled us out of the economic blackhole. India is well placed to take on the challenges this year, it noted, yet the Survey's chief architect, Principal Economic Adviser Sanjeev Sanyal, settled for a conservative growth projection of 8-8.5 per cent for FY23.
Most macroeconomic indicators are pulsing with adrenalin, but the economy isn't antifragile yet and any of several factors including geo-political tensions, rising global crude oil prices, persistent inflation, further pandemic-related economic disruptions, abnormal monsoon, or withdrawal of global liquidity can take away the punch bowl.
That said, the Survey dug into the data and the overall sketch makes one believe that India's growth fairy is back. From agriculture and allied sectors to industry to government expenditure to exports all are doing their bit, but two key components -- consumption and investments -- are not in step. Unhelpfully, the Survey's foresight isn't letter perfect either.
Services sector has been the hardest hit. Worse, segments like travel, trade and hotels are still hostage to the stop-start nature of COVID-19 waves. Worryingly, advance estimates too suggest full recovery of all components on the demand side this fiscal, except for private consumption. Likewise, private investment recovery is nascent, but the new Chief Economic Adviser Dr Anantha Nageswaran concluded that all will be well by the second half of FY23.
And better-than-budgeted tax collections, a sanitised banking system minus the overhang of bad loans, higher capital spending and a robust external sector all point to one thing: It'll be India's place in the Sun, soon.
For those who believe in it, the Survey's two-word summary is this: Hakuna matata... It means no worries. It's wackadoodle for those who don't. Perhaps, the first cheer squad was markets, with Sensex and Nifty rallying 1,000 and 238 points respectively in a pre-blitz session on Monday. What gives?
First up was the government's four-pronged approach to the crisis including short-term measures, structural supply-side changes, process and factor market reforms as Nageswaran outlined. In fact, the Survey has put up a spirited defense for the government's pandemic response explaining why they did what they did.
As against the usual Waterfall approach to fight crises, they opted for an Agile framework that took us closer to the fortune cookie. Stripped off economic jargon, it means the government believed that while dealing with uncertainities, it isn't enough to have just one grand plan (say a trillion dollar stimulus package) based on initial assessment, but several components rolled out from time to time. To recall Sanyal's earlier remarks, the idea was to cross the river feeling the stones.
Even if one's convinced with real-time rollout of measures, few are happy with the meagre fiscal spending of the government. The Survey reasoned that the emphasis was purely on supply-side for two reasons.
One, policymakers viewed the demand squeeze wasn't only due to the pandemic, though this doesn't really cut the mustard given that we were already in a cyclical slowdown.
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Helpfully, the second reason goes beyond the government's traditional pork preparing for a post-COVID scenario, and how demand-side measures alone can't guarantee the needed economic rebound.
Which is why, officials deployed a two-pronged supply-side strategy involving factor market reforms, deregulation of sectors including space, removal of legacy issues like retrospective tax, privatisation and monetisation, and to improve the economy's resilience, focused on social infrastructure like tap water, basic housing, and a helping hand to key industries.
Thanks to COVID-19, the central government debt shot up from 49.1 per cent of GDP in FY20 to 59.3 per cent in FY21, and will likely decline. As on March 2021, total outstanding liabilities stood at Rs 117 lakh crore, while public debt accounted for 89.9 per cent of total liabilites.
The Survey hopes the government not only meeting the fiscal deficit target thanks to bumper revenues, but will also be left with enough fiscal space to provide additional support. That said, it didn't touch upon the need for tackling the twin targets of reducing debt and deficits initiated in FY20.
Inflation is now a global issue and though headline inflation is within the targeted tolerance band of 6%, wholesale inflation is running in double-digits. Although this is partly due to base effects that will even out, India does need to be wary of imported inflation, especially from elevated global energy prices.
While the Survey noted that forex reserves of USD 634 billion, equivalent to 13.2 months of merchandise imports, and higher than the country's external debt, how the adequate buffers will fare in the face of rising global crude prices and against possible global liquidty tapering remains to be seen.
In short, the Survey has fired up hopes of yet another iconic budget. Will Finance Minister Nirmala Sitharaman, whose previous annual financial statement was hailed as one of the five disntictive budgets India has seen, get lucky again? We shall know soon.
