Last updated: Feb, 2022
Introduction
Ms. Nirmala Sitharaman, Union Minister for Finance presented the Economic Survey 2021-22 in the Parliament on January 31, 2022. The key highlights of the Economic Survey 2021-22 are as follows:
Widespread Vaccine Coverage
- Vaccination has had a crucial role in reducing the number of deaths, restoring confidence in the economy, and decreasing the effects of the second wave on India’s economy.
- On the 16th of January 2022, India completed one year of its COVID-19 vaccination effort, administering more than 1.56 billion doses of vaccine.
- There are almost 880 million people in India (93% of the adult population) who have received the first dose and 660 million people (70% of the adult population) who are fully vaccinated.
- Between May 2021 and January 2021, the daily vaccination rate on average has grown fourfold from 1.93 million to 7.54 million.
Sector Reforms
- Instead of relying on demand management, India has been concentrating on reforms on the supply-side, such as:
- Deregulation of numerous sectors
- Simplification of processes
- Removal of legacy issues like ‘retrospective tax’
- Privatisation
- These are a few of the major reforms in different sectors:
- Over a four-year period from 2021-22 to 2024-25, the Central Government's key assets have a total monetisation potential of Rs. 6 lakh crore (US$ 80.39 billion).
- Setting up of Production Linked Incentive (PLI) schemes for 13 sectors including Automobile, Telecom and pharmaceuticals drugs.
- Increasing private sector engagement in conventional satellite communication and remote sensing industries by liberalising them.
- The automatic route increased FDI in the defence sector by 74%, while the government route increased it by 100%.
- Deposit insurance has been enhanced per depositor per bank from ' Rs. 1 lakh (US$ 1339.30)' to ' Rs. 5 lakh (US$ 6696.51)'. As a result, 98.1 % accounts were completely secured by the end of March 2021, and 50.9 % deposits were guaranteed.
Current State of the Economy
- Following a contraction of 7.3% in 2020-21, the Indian economy is expected to grow by 9.2% in real terms in 2021-22 (according to initial advanced projections).
- GDP is expected to grow in real terms by 8-8.5% in 2022-23.
- The coming year is expected to see an increase in private sector investment with the financial system in strong shape to support the country’s economic recovery.
- The projection is equivalent to the World Bank's and Asian Development Bank's recent predictions of 8.7% and 7.5% real GDP growth for 2022-23, respectively.
- According to the IMF's latest World Economic Outlook projections, India's real GDP will grow at 9% in 2021-22 and 2022-23, and 7.1% in 2023-2024, making it the world's fastest growing major economy for all three years.
- In 2021-22, agriculture and allied industries are predicted to grow by 3.9%, industry by 11.8%, and services by 8.2%.
- In 2021-22, demand for consumption is expected to increase by 7.0%, Gross Fixed Capital Formation (GFCF) by 15%, exports by 16.5%, and imports by 29.4%.
- Indicators of macroeconomic stability imply that the Indian economy is well positioned to meet the challenges of 2022-23.
- In 2022-23, a combination of large foreign exchange reserves, continued foreign direct investment, and expanding export revenues will provide an effective cushion against a potential global liquidity withdrawal.
- The "second wave's" economic effect was significantly less than the full lockdown in 2020-21, but the health consequences were far more severe.
- The Indian government's unique reaction included safety-nets to soften the impact on vulnerable sectors of society and the business sector, a major increase in capital investment to promote growth, and supply-side reforms to ensure long-term expansion.
- In a climate of severe unpredictability, the government's flexible and multi-layered reaction is based in part of an "Agile" framework that employs feedback loops and the usage of 80 High Frequency Indicators (HFIs).
- In 2021-22, agriculture and allied industries are predicted to grow by 3.9%, industry by 11.8%, and services by 8.2%.
Fiscal Developments
- From April to November 2021, the Central Government's revenue receipts increased by 67.2% (YoY), compared to a 9.6% increase predicted in the 2021-22 Budget Estimates (over 2020-21 Provisional Actuals).
- In terms of YoY growth, gross tax revenue increased by more than 50% from April to November 2021. This is also a strong performance when compared to pre-pandemic levels in 2019-2020.
- Capex increased by 13.5% (YoY) from April to November 2021, with a heavy focus on infrastructure-intensive sectors.
- Continued tax collection and a targeted expenditure approach has helped to keep the budget deficit for April to November 2021 at 46.2% of BE.
- The Central Government debt has increased from 49.1% of GDP in 2019-20 to 59.3% of GDP in 2020-21 as an outcome of increased borrowings for COVID-19, but it is expected to decline as the economy recovers.
External Sectors
- After China, Japan, and Switzerland, India was the world's fourth largest FX reserve holding as of the end of November 2021.
- In the first half of 2021-22, foreign exchange reserves surpassed US$ 600 billion, reaching US$ 633.6 billion as of December 31, 2021.
- Despite dismal tourism income, there was a large increase in net services, with both receipts and payments surpassing pre-pandemic levels.
- During the current fiscal year, India's merchandise exports and imports rebounded rapidly, surpassing pre-COVID levels.
- Net capital flows increased to US$ 65.6 billion in the first half of 2021-22, owing to ongoing foreign investment inflows, a resurgence in net external commercial borrowings, increased banking capital, and additional special drawing rights (SDR) allocation.
- India's external debt increased to US$ 593.1 billion at the end of September 2021, up from US$ 556.8 billion in 2020-21, as a result of the IMF's increased Special Drawing Right (SDR) allocation and greater commercial borrowings.
Monetary Management and Financial Intermediation
- Indian markets outperformed counterparts among key developing market economies from April to December 2021.
- On October 18, 2021, the Sensex and Nifty reached new highs of 61,766 and 18,477, respectively.
- The system's liquidity remained in surplus.
- In 2021-22, the repo rate was maintained at 4%.
- To provide additional liquidity, the RBI implemented several initiatives such as the G-Sec Acquisition Program and Special Long-Term Repo Operations.
- The commercial banking system has handled the economic blow of the epidemic well.
- In 2021-22, YoY bank credit growth increased steadily, from 5.3% in April 2021 to 9.2% on December 31, 2021.
- Scheduled Commercial Banks (SCBs) had a Gross Non-Performing Advances ratio of 6.9% at the end of September 2021, down from 11.2% at the end of 2017-18.
Prices and Inflation
- The average headline CPI-Combined inflation reduced to 5.2% in 2021-22 (April- December) from 6.6% in 2020-21 to 5.2% in 2021-22 (April-December).
- Food inflation eased, resulting in a decrease in retail inflation.
- Food Inflation averaged 2.9% in 2021-22 (April to December), compared to 9.1% the previous year.
- Throughout the year, effective supply-side management kept the prices of most important commodities under control.
- To keep the price of pulses and edible oils from rising too high, proactive measures were implemented.
- The reduction in national excise and subsequent reductions in Value Added Tax by most states helped to bring down the price of gasoline and diesel.
- Wholesale inflation, as measured by the Wholesale Price Index (WPI), increased to 12.5% in 2021-22. (April to December). This has been attributed to: Previous year's low base, increase in economic activity, sharp rise in the price of crude oil and other imported commodities on the worldwide market, and high freight costs.
- Difference between CPI-C and WPI Inflation: The difference rose to 9.6% points in May 2020. However, this year's disparity reversed, with retail inflation sliding 8.0% points behind wholesale inflation in December 2021.
- This difference can be explained by factors such as: Variations related to the base effect, differences in the scope and coverage of the two indices, price collections, items covered, commodity weights, and the WPI being more sensitive to cost-push inflation driven by imported inputs.
- As the base impact in WPI gradually fades, the disparity between CPI-C and WPI is likely to shrink.
Sustainable Development and Climate Change
- India's total score on the NITI Aayog SDG India Index and Dashboard improved to 66 in 2020-21 up from 60 in 2019-20 and 57 in 2018-19.
- The number of Front Runners (scores 65-99) increased from 10 states in 2019-20 to 22 in 2020-21.
- In the NITI Aayog North-Eastern Region District SDG Index 2021-22, 64 districts were Front Runners and 39 districts were Performers in North East India.
- India possesses the tenth largest forest area in the world.
- From 2010 to 2020, India placed third in the world in terms of increasing forest acreage.
- Accounting for 2% of the world’s total forest area, the forests covered 24% of India’s total geographical, in 2020.
- The Plastic Waste Management Amendment Rules, 2021, were notified in August 2021, with the goal of eliminating single-use plastic by 2022.
- Notification on Extended Producer Responsibility for plastic packaging was drafted.
- The compliance rate of Grossly Polluting Industries (GPIs) in the Ganga main stem and its tributaries increased from 39% in 2017 to 81% in 2020.
- As a result, wastewater discharge has decreased from 349.13 million litres per day (MLD) in 2017 to 280.20 MLD in 2020.
- As part of the national declaration presented at the 26th Conference of Parties (COP 26) in Glasgow in November 2021, the Prime Minister declared aggressive targets to be met by 2030 to allow for further emissions reductions.
- The need of launching the one-word movement 'LIFE' (Lifestyle for Environment), which promotes thoughtful and purposeful consumption over mindless and destructive consumption, was emphasized.
Agriculture and Food Management
- Agriculture has witnessed strong growth in the last two years, accounting for 18.8% of the country's Gross Value Added (GVA) in 2021-22, with growth of 3.6% in 2020-21 and 3.9% in 2021-22.
- Crop diversity is aided by the Minimum Support Price (MSP) policy.
- In the most recent Situation Assessment Survey (SAS), net earnings from crop output grew by 22.6% as compared to the 2014 SAS Report.
- Agriculture's allied areas, including as animal husbandry, dairying, and fisheries, are rapidly developing as high-growth sectors and important drivers of total growth in the agricultural sector.
- Over the five years ending in 2019-20, the livestock sector grew at a CAGR of 8.15%. It has been a consistent source of revenue for farming households, contributing for around 15% of their monthly income on average.
- Food processing is made easier by the government through infrastructure development, subsidised transportation, and support for the formalisation of micro food businesses.
- India has one of the world's largest food management programmes.
- Through programmes such as the PM Gareeb Kalyan Yojana (PMGKY), the government has expanded the coverage of the food security network.
Industry and Infrastructure
- During April-November 2021, the Index of Industrial Production (IIP) increased by 17.4% YoY, compared to a contraction of 15.3% in April-November 2020.
- The Indian railways' capital spending grew to Rs. 155,181 crores (US$ 20.78 billion) in 2020-21, up from an average yearly of Rs. 45,980 crores (US$ 6.15 billion) between 2009-14, and it is expected to rise to Rs. 215,058 crores (US$ 28.80 billion) in 2021-22, a five-fold increase over the 2014 figure.
- The amount of road construction per day grew by 30.4% in 2020-21, from 28 kms per day in 2019-20 to 36.5 kms per day in 2020-21.
- Despite the pandemic, the net profit to sales ratio of large corporations reached an all-time high of 10.6% in the July-September quarter of 2021-22 (according to RBI Study).
- The introduction of the Production Linked Incentive (PLI) plan, massive infrastructure boosts - both physical and digital, as well as steps to minimise transaction costs and increase ease of doing business— all will help to speed up the recovery of the economy.
Services
- In the July-September quarter of 2021-22, the GVA of services surpassed the pre-pandemic level; nevertheless, the GVA of contact intensive sectors such as commerce, transportation, and others remained below the pre-pandemic level.
- In 2021-22, the whole service sector GVA is predicted to expand by 8.2%.
- Rail freight crossed its pre-pandemic level between April-December 2021, while air freight and port traffic virtually reached pre-pandemic levels, and domestic air and rail passenger traffic is gradually increasing — indicating that the second wave's impact was far more subdued than the first wave's.
- The service sector received over US$ 16.7 billion in FDI in the first half of 2021-22, accounting for about 54% of total FDI inflows into India.
- Revenue from IT-BPM services reached US$ 194 billion in 2020-21, with 138,000 new people hired during that time.
- The removal of telecom rules in the IT-BPO industry and the opening up of the space sector to private companies are two major government changes.
- In the January-March quarter of 2020-21, services exports surpassed pre-pandemic levels, and in the first half of 2021-22, they climbed by 21.6%, boosted by global demand for software and IT services exports.
- After the United States and China, India has become the world's third largest start-up ecosystem. From 733 in 2016-17, the number of new recognized start-ups climbed to over 14000 in 2021-22.
- In 2021, 44 Indian start-ups earned unicorn status, bringing the total number of unicorns to 83, the majority of which will be in the services sector.
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