Economic Survey asks government to act without fear on fiscal front, pegs FY22 growth at 11%

Economic Survey asks government to act without fear on fiscal front, pegs FY22 growth at 11%

MUMBAI: The Economic Survey for 2020-21, released on Friday, called on the government to open the fiscal taps to provide a pro-cyclical thrust to the economy, but at the same time not do so irresponsibly. The Survey was tabled by Finance Minister Nirmala Sitharaman in Lok Sabha and Rajya Sabha earlier in the day.

In the survey, Chief Economic Adviser Krishnamurthy Subramanian highlighted that India’s real GDP could grow at 11 per cent, while nominal GDP may climb by 15.4 per cent in 2021-22. The survey acknowledged that the economy was witnessing a ‘V-shaped’ recovery.

India’s real GDP is expected to have contracted 7.7 per cent this financial year, given the impact of the Covid-19 pandemic on the economy.

Here are some of the major takeaways for investors from the economic survey.

Go for more fiscal push

“The Survey’s call for more active, counter-cyclical fiscal policy is not a call for fiscal irresponsibility. It is a call to break the intellectual anchoring that has created an asymmetric bias against fiscal policy,” the Chief Economic Adviser said, indicating that the government may not be too worried about the need to be fiscally conservative.

Ignore the rating agencies

The survey also called upon the government to ignore the rating agencies, which it said have not been able to assess the true fundamentals of the Indian economy. “India’s fiscal policy, therefore, must not remain beholden to a noisy/biased measure of India’s fundamentals and should instead reflect Gurudev Rabindranath Thakur’s sentiment of a mind without fear,” the survey said. In 2020, Moody’s had downgraded India’s sovereign rating to the lowest among investment grade-rated countries.

Lift poor via growth not redistribution

“Given India’s stage of development, India must continue to focus on economic growth to lift the poor out of poverty by expanding the overall pie,” the survey said. It argued that the policy focus does not imply that redistributive objectives are unimportant, but that redistribution is feasible in a developing economy only if the size of the economic pie grows.

Healthcare should be priority

The survey called on the government to continue its emphasis on the National Health Mission. It may imply that the government would keep focus on the healthcare infrastructure in its Budget announcements on Monday in order to prepare India for future pandemics.

Clean banks’ balance sheet via AQR

The survey, surprisingly, called for the regulators to conduct as asset quality review of India’s banks once the forbearance provided to them with respect to recognition of bad loans during Covid-19 pandemic is withdrawn. “Given the problem of asymmetric information between the regulator and the banks, which gets accentuated during the forbearance regime, an AQR exercise must be conducted immediately after the forbearance is withdrawn,” the CEA said.

Boost productivity through R&D investments

India must significantly ramp up investment in R&D if it is to achieve its aspiration of emerging as the third largest economy in terms of GDP, the survey said. Mere reliance on ‘Jugaad innovation’ risks missing the crucial opportunity to innovate into the future. This requires a major thrust on R&D by the business sector, the survey noted. It said R&D expenditure should be boosted from 0.7 per cent of GDP to at least 2 per cent of GDP.

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