The Economic Survey, released on Friday, projected a GDP contraction of 7.7% for the year ending March 2021 and V-shaped recovery in the next. GDP growth is seen expanding by 11% in the 2021-22 fiscal (April 2021 to March 2022).
Finance Minister Nirmala Sitharaman on Friday tabled the Economic Survey in the Parliament and it details the state of the economy ahead of the government's Budget for fiscal year beginning April 1, 2021.
The document claimed that despite the hard-hitting economic shock created by the global pandemic, India is witnessing a V-shaped recovery with a stable macroeconomic situation aided by a stable currency, comfortable current account, burgeoning forex reserves, and encouraging signs in the manufacturing sector output.
The Economic Survey 2020-21, authored by a team led by Chief Economic Adviser KV Subramanian, details the state of different sectors of the economy as well as reforms that should be undertaken to accelerate growth.
The GDP contracted by a record 23.9% in April-June and by 7.5% in the second quarter.
India's economic growth is likely to rebound with a 11% growth in the next financial year as it makes a 'V-shaped' recovery after witnessing a pandemic-led carnage, the Pre-Budget Economic Survey said.
India witnessed its last annual contraction of 5.2% in fiscal year 1979-80.
The Economic Survey 2020-21 said the agriculture sector is the only silver lining while services, manufacturing and construction were most hit by the lockdown that was imposed to curb the outbreak of the COVID-19 pandemic.
“These conservative estimates reflect upside potential that can manifest due to the continued normalisation in economic activities as the rollout of Covid-19 vaccines gathers traction. This will further be supported by supply-side push from reforms and easing of regulations, push to infrastructural investments, boost to manufacturing sector through the Productivity Linked Incentive Schemes, recovery of pent-up demand for services sector, increase in discretionary consumption subsequent to roll-out of the vaccine and pick up in credit given adequate liquidity and low interest rates,” the survey stated.
Further, it added that it would take the economy two years to reach and go past the pre-pandemic level.
Referring to inflation, the survey says that primarily driven by food prices, consumer price inflation remained above 6% for most of the year, given supply disruptions. “The softening of CPI inflation recently reflects easing of supply side constraints that affected food inflation,” it said.
The Economic Survey 2020-21, tabled in Parliament, said that sovereign credit ratings methodology must be amended to reflect economies' ability and willingness to pay their debt obligations, and suggested that developing economies must come together to address this bias and subjectivity inherent in sovereign credit ratings methodology.
Global ratings agencies have the lowest investment-grade rating on India, which is just above the junk status.
India’s ratings must not remain “beholden to a noisy/biased measure of India's fundamentals” it said.
"Never in the history of sovereign credit ratings has the fifth largest economy in the world been rated as the lowest rung of the investment-grade (BBB-/Baa3). While sovereign credit ratings do not reflect the Indian economy's fundamentals, noisy, opaque and biased credit ratings damage FPI flows," the survey said.
It is therefore imperative that countries engage with credit rating agencies to make the case that their methodology must be corrected to reflect economies' ability and willingness to pay their external obligations.
The survey said it is imperative that sovereign credit ratings methodology be made more transparent, less subjective and better attuned to reflect economies' fundamentals.
Ratings do not capture India's fundamentals, the survey said, and added that past sovereign credit rating changes for India have not had a major adverse impact on select indicators such as Sensex return, foreign exchange rate and government securities yield.
With the state of healthcare taking center stage in a pandemic year, the economic survey stated that an increase in public healthcare spending from 1% to 2.5-3% of GDP can decrease out-of-pocket expenditure from 65% to 35% of overall healthcare spending.
It also proposed that there be a regulator for the health sector, due to market failures stemming from information asymmetry.
It states that India's health infrastructure must be agile to respond to pandemics, and that healthcare policy must not become beholden to 'saliency bias'.
It also made a push for telemedicine, and said it needs to be harnessed to the fullest.
The economic survey said that India over-regulates the economy, resulting in regulations being ineffective “even with relatively good compliance with process”. It stated the root cause of overregulation is an approach of attempting to account for every problem,and said the solution is to simplify regulations and invest in greater supervision.
The Economic Survey 2020-21 said the agriculture sector is the only silver lining while services, manufacturing and construction were most hit by the lockdown that was imposed to curb the outbreak of the COVID-19 pandemic.
With agency inputs