ndia’s economy is firmly in the middle of a V-shaped recovery and will bounce back to record 11% growth in FY 2022 after an estimated 7.7% contraction this year, as per a “conservative” estimate in the Economic Survey for 2020-21, which termed this a “lockdown dividend” from the country’s stringent response to the COVID-19 pandemic.
The Survey terms the supply side push from reforms and infrastructure investment, the roll-out of the vaccine, and targeted moves like the production-linked incentive schemes for manufacturers as the prime reason behind the projected growth rate.
The Economic Survey endorsed continuation of the expansionary fiscal policy to sustain recovery in demand as the economy comes out of the pandemic shock. It added that the expenditure support along with the various key reforms introduced during the year are likely to ensure medium term growth. “The growth recovery would facilitate buoyant revenue collections in the medium term, thereby enabling a sustainable fiscal path,” the report stated.
The Survey highlights the potential of public investment, especially in a slowdown. It calls for fiscal policy to support growth. It also emphasizes the need to rethink fiscal rules. “Fiscal policy must support growth till the pre-Covid growth path is achieved. Public investment spending is self-financing in the medium term because it enables growth and crowds in public investment. In this context, India’s fiscal rules, which may not be enabling counter cyclical fiscal policies, must need a rethink,” Chief Economic Advisor, Krishnamurthy Subramanian said.
The CEA said excessive regulation leads to excessive and opaque supervision and exercise of discretion, making a pitch for simple regulation and transparent supervision.