Month: January 2021

It suggested that to ensure that the economy remains in good health to avail the full benefit of these significant reforms, the “economic bridge” between the medium and long-term has to be created…reports Asian Lite News

The Economic Survey for 2020-21 has suggested that the government should come up with more fiscal measure for short term support to the economy and businesses.

Highlighting the long term reform measures, the survey tabled by Finance Minister Nirmala Sitharaman in Parliament on Friday, also said that to eliminate the possibility of growth being impacted in the medium to long run, the Government has been extremely pro-active in launching several seminal reforms, but noted that their impact will manifest in the medium to long-term only.

It suggested that to ensure that the economy remains in good health to avail the full benefit of these significant reforms, the “economic bridge” between the medium and long-term has to be created.

“Only an active fiscal policy — one that recognises that the risks from doing too little are much more than the risks from doing too much — can ensure that this ‘economic bridge’ is well laid out,” he said.

Although, the government has taken several measures to support and provide relief to businesses, steps to push demand have been lagging, according to several economists. Supply-side push, however, have been appreciated.

Further, the issue has been raised at several forums by several industry representatives that, although the reforms measures are welcome. They would reflect changes only in the long run, while the businesses and the common man need some immediate cushioning.

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Contrary to expectations of a faster growth in FY22 helping to shave off the sharp GDP contractions this year, the Indian economy will take at least two more years to return to the growth levels achieved in the pre-pandemic period, the Economic Survey 2020-21 said.

The projection on return of pre-pandemic growth is based on IMF projections of 11.5 per cent real GDP growth in 2021-22 and a 6.8 per cent growth in 2022-23. With these growth projections, Indians would once again return to become the fastest growing economy in the world.

The survey has projected that the country’s real GDP in FY22 will grow by 11 per cent after an estimated contraction of 7.7 per cent during the current fiscal.

The survey said that Covid led to a once in a century global crisis in 2020. While the lockdown resulted in GDP contracting by 23.9 per cent in Q1 of FY21, the recovery has been V shaped thereafter, the survey noted.

Regulations To Be Simplified

The Economic Survey 2020-21 has called for the simplification of regulatory processes in the light of uncertainties amid the coronavirus pandemic.

The survey presented in Parliament by Union Finance Minister Nirmala Sitharaman on Friday noted that administrative processes in India are often loaded with significant procedural delays and other regulatory complexities in decision-making process to make them inefficient and cumbersome for all stakeholders.

In order to resolve the issues, authorities often make attempts to reduce the discretion by having more complex regulations, which is counterproductive and results in even more non-transparent discretion, it added.

According to the document prepared by the government’s Chief Economic Adviser Krishnamurthy V Subramanian, international comparisons show that the problems of India’s administrative processes derive less from lack of compliance to process or regulatory standards, but from over-regulation.

The survey observes that it is not possible to have regulations that can account for all the uncertainties in the world and all possible outcomes. The evidence shows that India over-regulates the economy.

“This results in regulations being ineffective even with relatively good compliance with the process,” it said.

The solution, the Economic Survey says, is to avoid substituting supervision with more complex regulation. The optimal solution is to have simple regulations combined with transparent decision-making process.

It is important then to balance it with three things — improved transparency, stronger systems of ex-ante accountability (such as bank boards), and ex-post resolution mechanisms.

The survey noted that wherever such regulatory processes have been simplified, ease of doing business has improved significantly.

Also Read-India’s GDP estimated to contract by 7.7 %

India’s timely and stringent lockdown to curb the spread of Covid-19 pandemic led to the ‘V’-shaped economic recovery, said the Economic Survey 2020-21.

The document was tabled by Finance Minister Nirmala Sitharaman in Lok Sabha on Friday.

“Evidence from the experience of Spanish flu establishes that cities that intervened with lockdowns earlier and more aggressively experience stronger recovery in the economic front in the long run,” the survey said.

“Learning from this experience, India implemented an early and stringent lockdown from late March to May to curb the pace of spread of Covid-19. With the economy brought to a standstill for two complete months, the inevitable effect was a 23.9 per cent contraction in GDP as compared to previous year’s quarter.”
According to the survey, since the gradual ‘Unlock’ since June, 2020, the country has experienced a ‘V’-shaped recovery.

Besides, the document prepared by Finance Ministry’s Chief Economic Adviser Krishnamurthy V. Subramanian said ‘V’-shaped economic recovery while avoiding a second wave of infections make India a ‘sui generis’ case in this unique, synchronized global recession.

“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 document said.

“India is reaping the ‘lockdown dividend’ from the brave, preventive measures adopted at the onset of the pandemic, which were based on the humane principle advocated eloquently in the Mahabharata….”

As per the survey, the policy maturity and the alacrity displayed to not “waste a crisis” has helped the country to save both ‘lives’ and ‘livelihoods’ in its own unique way and has shifted the focus away from the short-term pain created by the crisis to the potential for long-term gains engendered by the policy response.

Also Read-India’s GDP estimated to contract by 7.7 %

India’s GDP is estimated to contract by 7.7 per cent during the current fiscal, said the Economic Survey 2020-21 on Friday.

The document which was tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha in its debt simulations for worst-case debt analysis assumed the contraction at (-) 7.7 per cent.

According to the survey, the real growth rate for FY22 was assumed at 11.5 per cent based on IMF estimates.

The document prepared by the Finance Ministry’s Chief Economic Adviser Krishnamurthy V. Subramanian said general government debt for FY20 is taken as 73.8 per cent of the GDP.

“The primary deficit for FY21 is assumed to be 6.8 per cent of GDP… Primary deficit for FY22 is assumed to be 2.5 per cent of GDP.

“The declining trajectory of primary deficit is assumed to reach 1.5 per cent of GDP by FY24, and it is assumed to stay at 1.5 per cent thereafter,” it added.

Besides, the survey cited that nominal interest rate is assumed to be 6 per cent.

“As on January 26, 2021, we estimate the weighted average cost of borrowing using the weights of general government borrowing across maturities to be 6 per cent.

“Inflation is taken as 5 per cent, i.e. mid-point of the range of 4 per cent – 6 per cent.”

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