News & Events
Economic Survey 2021-22
- January 31, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
Economic Survey 2021-22
Subject – Economy
Context – The Union Finance Ministry is expected to release the single volume Economic Survey for 2021-22 on January 31, 2022.
Concept –
What is the Economic Survey?
- The Economic Survey is an annual financial document that reviews the economic development in India over the past financial year by analysing and providing detailed statistical data of all the sectors-industrial, agricultural, industrial production, employment, prices, exports, among others.
- It also analyses trends in other factors that have an impact on the Indian economy such as money supply and foreign exchange reserves.
- The Economic Survey is released a day before the Union Budget is presented in the Parliament.
- The Survey is prepared by the Economics Division of the Department of Economic Affairs of the Finance Ministry under the overall guidance of the Chief Economic Adviser (CEA). It is only released after it is approved by the FM.
- However, this year the Economic Survey is being prepared by the Principal Economic Advisor and other officials in absence of the Chief Economic Advisor (CEA).
- The previous CEA KV Subramanian had completed his three-year term as CEA on December 6 last year.
Why is Economic Survey significant?
- The Economic Survey is regarded as the flagship annual document of the Union Ministry of Finance. It is also seen as the report of the Union Government for the financial year under review.
- The Economic Survey provides a summary of all the economic development across the country that happened in a particular financial year. Apart from analysing the macroeconomic situation of the country over the past financial year, it also provides an outline for the next financial year.
- The survey maps out a roadmap for India’s economy going into the next financial year. It provides detailed reasons and justifications for why it believes the government should enact certain economic reforms for managing the economy.
When was the first Economic Survey of India presented?
- The first Economic Survey was tabled in the year 1950-51. Up to 1964, it was presented along with the Union Budget. From 1964 onwards, it has separated from the Budget.
Why is the Economic Survey presented before the Budget?
- As the Economic survey reviews the overall performance of the economy during the year, it helps in giving a better understanding of the Union Budget.
- The survey primarily helps to comprehend the country’s priority for the next financial year and what sectors would need more emphasis in the Union Budget.
- The Economic Survey was de-linked from the Budget in 1964 and unveiled in advance in order to provide a context of the latter.
What do the Economic Survey documents contain?
- The Economic Survey consists of two parts– one includes the economic challenges the country is facing and the second is the analysis of the year gone by.
Is the govt bound to present the Economic Survey?
- The government is not bound to present the Economic Survey as it nowhere mentioned in the Constitution. However, it is now part of the government’s practice to present the survey every year before the budget.
Economic Survey’s objectives
The various objectives of the Economic Survey in India can be summed up under three heads:
- Reviewing the country’s economic development over the past 12 months.
- Summarising how the different development projects of the country perform.
- Highlighting the government’s policy initiatives.
The format of the Economic Survey
- After Arvind Subramanian took charge as the Chief Economic Advisor (CEA) of the country, the Economic Survey became a two-volume report and his successor KV Subramanian continued the same trend.
- The first volume generally has chapters on the future course of the economy. Therefore, the first volume provides a scope for the CEAs to narrate their views. The second volume lists the country’s economic developments over the past year.
- The principal focus of the second volume is to explain the immediate economic issues faced by the different sectors with the help of statistical data. It throws light on the major challenges anticipated along with the solutions presumed.
Key Highlights of the Economic Survey 2021-22
Forex Reserves in India
- India was the fourth largest forex reserve holder as of December 2021 according to the Economic Survey 2022 released on Monday.
- The continuous inflow of the forex reserve has transformed India from the earlier Fragile Five countries to the the fourth largest forex reserve holder, the survey noted.
- India was the fourth largest forex reserves holder in the world after China, Japan, and Switzerland as on November 2021.
- The forex reserve stood at USD 633.6 billion at end of December 2021 as against USD 577 billion at the end of March 2021, the Economic Survey document said.
State of the Economy:
- Indian economy estimated to grow by 9.2 percent in real terms in 2021-22 (as per first advanced estimates) subsequent to a contraction of 7.3 percent in 2020-21.
- GDP projected to grow by 8- 8.5 percent in real terms in 2022-23.
- The year ahead poised for a pickup in private sector investment with the financial system in good position to provide support for economy’s revival.
- Projection comparable with World Bank and Asian Development Bank’s latest forecasts of real GDP growth of 8.7 percent and 7.5 percent respectively for 2022-23.
- As per IMF’s latest World Economic Outlook projections, India’s real GDP projected to grow at 9 percent in 2021-22 and 2022-23 and at 7.1 percent in 2023-2024, which would make India the fastest growing major economy in the world for all 3years.
- Agriculture and allied sectors expected to grow by 3.9 percent; industry by 11.8 percent and services sector by 8.2 percent in 2021-22.
- On demand side, consumption estimated to grow by 7.0 percent, Gross Fixed Capital Formation (GFCF)by 15 percent, exports by 16.5 percent and imports by 29.4 percent in 2021-22.
- Macroeconomic stability indicators suggest that the Indian Economy is well placed to take on the challenges of 2022-23.
- Combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide adequate buffer against possible global liquidity tapering in 2022-23.
- Economic impact of “second wave” was much smaller than that during the full lockdown phase in 2020-21, though health impact was more severe.
- Government of India’s unique response comprised of safety-nets to cushion the impact on vulnerable sections of society and the business sector, significant increase in capital expenditure to spur growth and supply side reforms for a sustained long-term expansion.
- Government’s flexible and multi-layered response is partly based on an “Agile” framework that uses feedback-loops, and the use of eighty High Frequency Indicators (HFIs) in an environment of extreme uncertainty.
Fiscal Developments:
- The revenue receipts from the Central Government (April to November, 2021) have gone up by 67.2 percent (YoY) as against an expected growth of 9.6 percent in the 2021-22 Budget Estimates (over 2020- 21 Provisional Actuals).
- Gross Tax Revenue registers a growth of over 50 percent during April to November, 2021 in YoY terms. This performance is strong compared to pre-pandemic levels of 2019-2020 also.
- During April-November 2021, Capex has grown by 13.5 percent (YoY) with focus on infrastructure intensive sectors.
- Sustained revenue collection and a targeted expenditure policy has contained the fiscal deficit for April to November, 2021 at 46.2 percent of BE.
- With the enhanced borrowings on account of COVID-19, the Central Government debt has gone up from 49.1 percent of GDP in 2019-20 to 59.3 percent of GDP in 2020-21, but is expected to follow a declining trajectory with the recovery of the economy.
External Sectors:
- India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID levels during the current financial year.
- There was significant pickup in net services with both receipts and payments crossing the pre-pandemic levels, despite weak tourism revenues.
- Net capital flows were higher at US$ 65.6 billion in the first half of 2021-22, on account of continued inflow of foreign investment, revival in net external commercial borrowings, higher banking capital and additional special drawing rights (SDR) allocation.
- India’s external debt rose to US $ 593.1 billion at end-September 2021, from US $ 556.8 billion a year earlier, reflecting additional SDR allocation by IMF, coupled with higher commercial borrowings.
- Foreign Exchange Reserves crossed US$ 600 billion in the first half of 2021-22 and touched US $ 633.6 billion as of December 31, 2021.
- As of end-November 2021, India was the fourth largest forex reserves holder in the world after China, Japan and Switzerland.
Monetary Management and Financial Intermediation:
- The liquidity in the system remained in surplus.
- Repo rate was maintained at 4 per cent in 2021-22.
- RBI undertook various measures such as G-Sec Acquisition Programme and Special Long-Term Repo Operations to provide further liquidity.
- The economic shock of the pandemic has been weathered well by the commercial banking system:
- YoY Bank credit growth accelerated gradually in 2021-22 from 5.3 per cent in April 2021 to 9.2 per cent as on 31 December 2021.
- The Gross Non-Performing Advances ratio of Scheduled Commercial Banks (SCBs) declined from 11.2 per cent at the end of 2017-18 to 6.9 per cent at the end of September, 2021.
- Net Non-Performing Advances ratio declined from 6 percent to 2.2 per cent during the same period.
- Capital to risk-weighted asset ratio of SCBs continued to increase from 13 per cent in 2013-14 to 16.54 per cent at the end of September 2021.
- The Return on Assets and Return on Equity for Public Sector Banks continued to be positive for the period ending September 2021.
- Exceptional year for the capital markets:
- 89,066 crore was raised via 75 Initial Public Offering (IPO) issues in April-November 2021, which is much higher than in any year in the last decade.
- Sensex and Nifty scaled up to touch peak at 61,766 and 18,477 on October 18, 2021.
- Among major emerging market economies, Indian markets outperformed peers in April-December 2021.
Prices and Inflation:
- The average headline CPI-Combined inflation moderated to 5.2 per cent in 2021-22 (April-December) from 6.6 per cent in the corresponding period of 2020-21.
- The decline in retail inflation was led by easing of food inflation.
- Food inflation averaged at a low of 2.9 per cent in 2021-22 (April to December) as against 9.1 per cent in the corresponding period last year.
- Effective supply-side management kept prices of most essential commodities under control during the year.
- Proactive measures were taken to contain the price rise in pulses and edible oils.
- Reduction in central excise and subsequent cuts in Value Added Tax by most States helped ease petrol and diesel prices.
- Wholesale inflation based on Wholesale Price Index (WPI) rose to 12.5 per cent during 2021-22 (April to December). This has been attributed to:
- Low base in the previous year,
- Pick-up in economic activity,
- Sharp increase in international prices of crude oil and other imported inputs, and
- High freight costs.
- Divergence between CPI-C and WPI Inflation:
- The divergence peaked to 9.6 percentage points in May 2020.
- However, this year there was a reversal in divergence with retail inflation falling below wholesale inflation by 8.0 percentage points in December 2021.
- This divergence can be explained by factors such as:
- Variations due to base effect,
- Difference in scope and coverage of the two indices,
- Price collections,
- Items covered,
- Difference in commodity weights, and
- WPI being more sensitive to cost-push inflation led by imported inputs.
- With the gradual waning of base effect in WPI, the divergence in CPI-C and WPI is also expected to narrow down.
Sustainable Development and Climate Change:
- India’s overall score on the NITI Aayog SDG India Index and Dashboard improved to 66 in 2020-21 from 60 in 2019-20 and 57 in 2018-19.
- Number of Front Runners (scoring 65-99) increased to 22 States and UTs in 2020-21 from 10 in 2019-20.
- In North East India, 64 districts were Front Runners and 39 districts were Performers in the NITI Aayog North-Eastern Region District SDG Index 2021-22.
- India has the tenth largest forest area in the world.
- In 2020, India ranked third globally in increasing its forest area during 2010 to 2020.
- In 2020, the forests covered 24% of India’s total geographical, accounting for 2% of the world’s total forest area.
- In August 2021, the Plastic Waste Management Amendment Rules, 2021, was notified which is aimed at phasing out single use plastic by 2022.
- Draft regulation on Extended Producer Responsibility for plastic packaging was notified.
- The Compliance status of Grossly Polluting Industries (GPIs) located in the Ganga main stem and its tributaries improved from 39% in 2017 to 81% in 2020.
- The consequent reduction in effluent discharge has been from 349.13 millions of litres per day (MLD) in 2017 to 280.20 MLD in 2020.
- The Prime Minister, as a part of the national statement delivered at the 26 Conference of Parties (COP 26) in Glasgow in November 2021, announced ambitious targets to be achieved by 2030 to enable further reduction in emissions.
- The need to start the one-word movement ‘LIFE’ (Lifestyle for Environment) urging mindful and deliberate utilization instead of mindless and destructive consumption was underlined.
Agriculture and Food Management:
- The Agriculture sector experienced buoyant growth in past two years, accounting for a sizeable 18.8% (2021-22) in Gross Value Added (GVA) of the country registering a growth of 3.6% in 2020-21 and 3.9% in 2021-22.
- Minimum Support Price (MSP) policy is being used to promote crop diversification.
- Net receipts from crop production have increased by 22.6% in the latest Situation Assessment Survey (SAS) compared to SAS Report of 2014.
Industry and Infrastructure:
- Index of Industrial Production (IIP) grew at 17.4 percent (YoY) during April-November 2021 ascompared to (-)15.3 percent in April-November 2020.
- Introduction of Production Linked Incentive (PLI) scheme, major boost provided to infrastructure-both physical as well as digital, along with measures to reduce transaction costs and improve ease of doing business, would support the pace of recovery.
Services:
- GVA of services crossed pre-pandemic level in July-September quarter of 2021-22; however, GVA of contact intensive sectors like trade, transport, etc. still remain below pre-pandemic level.