- The majority of the people in the know would eagerly wait for the economic survey to be unveiled by the Union Government of the day offering an insight into what lies ahead for the country’s growth prospects. Moreso now as the country slowly and steadily fights to emerge from the pandemic induced economic challenges. Many sectors simply flattened under the deluge of suffocating restrictions during the last two years are well documented. With the third Covid wave apparently lacking the earlier devastating characteristics, the Indian think tank is hoping the situation will return to normalcy sooner than expected.
PC: Crowf
- Why only the think tank, every individual in the line of fire would be fervently hoping things will be back to normalcy sooner. Against this backdrop, the key message emanating out of the recently released Economic Survey is that in 2022-23, the economy is expected to grow between 8 – 8.5%, mainly on account of vaccination triggered normalcy, robust exports, and the availability of fiscal space for Government of India investment. Note that these are reasonable assumptions and lend credibility to projections incorporated. However, the forecast also assumes there won’t be any more shocks.
- The key takeaway from the survey is as follows. First, the Survey expects the monsoon to be normal. Second, it assumes key central banks in rich countries will ensure that financial markets don’t panic during liquidity tightening. Third, it says the average price of oil will drift down from the current $89/barrel to about an average of $70 – 75. Is it too preposterous and naïve to assume things now itself? Time alone will answer the question. Even assuming all the above hold true, there are implicit assumptions in the Survey revealing itself on close scrutiny. The Union Government assumes that the pandemic’s economic cost is entirely temporary and that vulnerable economic segments will bounce back.
PC: Creativeart
- This is inconsistent with data on both employment and overall consumption. As per reports, private consumption in 2021-22 is not expected to reach the level that existed two years ago even though the overall GDP will be higher. The Union Government’s quarterly surveys on urban employment show that jobs have shifted to the informal sector leading to a drop in the labour force as people move out of the market. The cascading effect of the laborers dropping out of the market is reflected in the low consumption owing to modest and uncertain incomes. No wonder, consumption has not kept pace with overall GDP. Mind you, this situation also has implications for the revival of private investment.
- Thus, even if banks have lendable funds, the industry will wait for robust demand. Nonetheless, the recovery in overall GDP has provided the Government authorities with necessary fiscal space arising from buoyant revenue. Therefore, in addition to capital expenditure, it needs to use the fiscal space to help contact-intensive services sectors on priority to get back on their feet. The resultant outcome will ensure improvement of the job market and feed into private consumption as well. In conclusion, recovery has been good but worries remain, domestic and possibly external too.
