ECONOMIC SURVEY '21

Part-1

1 QUICK FACTS
First economic survey of This year's economic
India was presented in 1950- survey is a tribute to the
51 as a part of Union Budget. immortal human spirit of
grit and compassion
Seperate economic survey
after 1964 - as a part of encapsulated by the
budget session tireless battle against the
pandemic by frontline
COVID-19 warriors
VOLUMES
Volume - 1: to provide evidence based economic analyses of the
challenges of policy making and tolls to make it more effective
Volume - 2: reviews recent developments in major sectors of the
economy with a focus on challenges faced this year.

WHY? WHEN?
WHO?
An annual document Department of
of economic A day before the economic affairs,
performance & Union budget for the Ministry of
regarded as the the next year is Finance under the
official report card of announced (if it guidance of Chief
union government is a holiday - EconomicAdvisor
It gives a roadmap for previous working (Dr. Krishnamurthy
country's economy day) Subramanian)
2 ESTIMATES

Explanation:
Low-base while calculating y-o-y
inflation rate (contraction in this year).
Real GDP Supply side push from reforms & easing
growth of regulations, push to infrastructural
estimated investments (cap ex allocation),
to grow manufacturing sector (Make in India,
upto 11% Atma nirbhar Bharat), recovery of pent-
and up demand for service sector, increase in
nominal discretionary consumption after vaccine

GDP upto roll-out, pick up in credit allowing

15.4% in adequate liquidity & low-interest rates.

2021-22
Significance:
RGDP growth by 2.4% over the absolute
level of FY 2019-20 (2 years to recover
from COVID)

IMF estimate: RGDP growth (2021-22) - 11.5% and (2022-23)

- 6.8%, India is expected to emerge as fastest growing
economy in next 2 years.

Full Article - Click here

 VOLUME - 1 HIGHLIGHTS
3 Strategic response to Covid 19 - Humane
principle -
lives lost cannot be brought back
Saving
40 day lockdown was used to scale up
Lives and necessary medical & para medical
Livelihoods infrastructure
GDP growth will recover from temporary
amidst
shock of pandemic
pandemic lockdown resulted in 23.9% contraction in
crisis GDP (Q1), then V-shape recovery - 7.5%
decline in Q2 and recovery across all key
economic indicators

Strategy motivation: Nobel-Prize winning research by Hansen

& Sargent - a policy focused on minimizing losses in worst-case
scenario when uncertainity is very high

Structural reforms to expand supply in medium-long term

Avoid long-term damage to productive capacities
Major reforms in agricultural markets, labour laws and
definition of MSMEs to enable them to grow faster and
contribute to employment creation in primary & secondary
sector
Public investment programme centred around National
infrastructure pipeline

Twin
Economic
Shocks by
Pandemic
 VOLUME - 1 HIGHLIGHTS

4 Amidst pandemic, debt to support fiscal

expansion raised concerns about its future
implications, debt sustainability, sovereign
Growth leads ratings etc

to Debt Debt sustainability depends on Interest Rate

sustainability Growth Rate Differential which is difference

but not between interest rate and the growth rate.

necessarily If growth rate is high, in such countries,

vice - versa! growth cases debt sustainability. In India,
negative IGRD ( interest rate < growth rate)
ensures debt sustainability problems to be
avoided.

Credit ratings map the probability of

default and reflects the willingness &
repayment capability of borrower
Does India's
Sovereign No 5th largest economy in the world has
Credit Rating ever been rated as lowest of the investment
reflect its grade (BBB-/Baa3). These were

fundamentals? predominantly rated AAA except China

(A-/A2 in 2005) and India (lowest).
NO!
India's willingness to pay is excellent but
ability to pay is gauged by low foreign
currency denominated debt & forex reserves
5 VOLUME - 1 HIGHLIGHTS
Downgrading (or upgrading sovereign debt below (or
above) investment grade may have imminent impact on the
prices.

Relationship between inequality & socio-

economic outcomes as well as economic
growth & socio-economic outcomes is
different in India comparatively than
advanced economies.
Inequality Absence of a trade-off between economic
and Growth growth and inequality which is evident in
advanced economies
Inequality
Socio-ecomoic indicators
Economic growth
6 VOLUME - 1 HIGHLIGHTS

Adverse socio-economic
outcomes
Higher inequality
Less impact on income
per capita

Hence, in India, economic growth & inequality converge

in terms of their effects on socio-economic indicators.
Economic growth has predominant impact on poverty
alleviation than inequality.
Hence, India must continue to focus on economic growth
to lift poor out of poverty by expanding overall pie.
Redistribution is only feasible in a developing
economyif the size of the economic pie grows.

Importance of healthcare sector and its

inter-linkage with other sectors is
finally given ultimate importance.
Focus on
Healthcare National Health Mission (NHM) played
critical role in making pre-natal/ pst-
natal healthcare accessible to poor
 VOLUME - 1 HIGHLIGHTS
7 Emphasis on NHM in conjunction with
Ayushman Bharat should continue
Increase in public healthcare spending: From 1%
to 2.5-3% of GDP which will also decrease the
Key
out-of-pocket expen- diture from 65% to 35% of
suggestions overall healthcare spending
for A regulator for the healthcare sector must be
Healthcare considered.
amid Mitigation of information asymmetry to:
help lower insurance premiums,
COVID 19:
enable the offering of better products
increase insurance penetration
Telemedicine needs to be harnessed to the
fullest.

Issue of over-regulation is illustrated through

time taken for a company to undergo voluntary
liquidation in India (1570 days even when there is
no litigation/dispute)
Over-regulation results in regulations being
ineffective
Solution is to simplify regulations and invest in
Process greater supervision which, by definition, implies
Reforms allowing greater discretion balanced with
transparency, systems of ex-ante accountability
(such as bank boards) and ex-post resolution
mechanisms.
This is already implemented in reforms ranging
from labour codes to removal of onerous
regulations on the BPO sector.
 References:

https://www.indiabudget.gov.in/economicsurvey/

https://d19k0hz679a7ts.cloudfront.net/value_adde
d_material/e55c1-economy-survey-summary-
2021.pdf

https://www.drishtiias.com/daily-updates/daily-
news-analysis/highlights-of-economic-survey-2021

A₹thaShastra
The Economics Club
Indian Institute of Management Rohtak
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