Economic Survey provides a lot of cheer on the state of the economy

It cautions on areas of concern, which if known beforehand, are easier to tackle as they don't come as shocks. So it is a good precursor to the Union Budget

The much-awaited Economic Survey provides a lot of cheer on the state of the economy and the way forward. It cautions on areas of concern, which if known beforehand, are easier to tackle as they do not come as shocks. It is hence a good precursor to the Union Budget, which can consider these thoughts.

Two things ring the positive bells. The first is the take on growth. We are already aware of what the CSO has projected growth at 9.2 per cent for FY22, which has been moderated to an extent by the third Covid wave. If this is kept behind us, the Survey assumes maintenance of economic growth momentum at 8-8.5 per cent in fiscal 2022-23 (FY23), and hence is more conservative than the IMF, which has pitched for nine per cent growth. By pointing to the assumptions made like commodity prices and inflation and restoration of supply chains, it rightly takes a more nuanced view on growth.

Growth is expected to more or less even across both consumption and investment, though the bet is that the latter will be the driver. This sounds good because if the private sector sees an uptick in investment, it will carve the route to sustained growth. The government may just opt for a higher allocation next year. This is the second bit of the good news.

The government’s revenue has been better-than-expected in FY22 notwithstanding the second wave. Therefore, there is reason to believe that the deficit will come in lower-than-expected. This provides room for more expenditure on the development side. But the crux for the government will be to ensure that the money is spent from April onwards and not held back keeping the budgetary numbers in mind. In FY22, the progress has been gradual as the second and third waves have come in the way of speedier implementation. Hopefully, this will not be an issue next year.

Higher growth also means that the government will have the luxury of tax collections increasing (as consumption is expected to revive), which will help to narrow the difference between income and expenditure, thus providing scope for higher expenditure without the need to borrow more. The call on fiscal deficit taken during the Budget will, however, provide a clue to the market on what the quantum of gross borrowing will be.

Some interesting thoughts have been expressed on other areas. The first is on crop diversification. This is something which agri experts have been arguing for long, and there is evidently a need to get into the act of producing more pulses and oilseeds. This will help to reduce the dependence on imports and hence protect against inflation. It may be pointed out that inflation today is high as global prices of edible oils have increased sharply with revival in demand. India, being the largest importer with over 60 per cent of consumption coming from global markets, has been buffeted by high inflation. If we can change this matrix, it will be very useful.

Second, the Survey has lauded the PLI scheme, which is indicative of probably higher allocations to be made for this scheme to cover new sectors in FY23.  PLI is probably one of the most progressive schemes to be announced as it gives credit when there is performance. As the government has moved away from freebies to merit based allocations, the PLI fits the bill very well. In fact, the response so far as pointed out by the Survey has been very good and this will lead to higher investment in the next couple of years and hence employment and consumption in subsequent phases.

Third is the approach with respect to PSUs. The sale of Air India has been a major success for the government, and if combined with the National Asset Monetisation plan, one can see better value being derived from the PSUs. These plans were mentioned in the Atma Nirbhar agenda in 2020 and have now moved several steps ahead in terms of implementation. One can see positive fallouts for the capital markets, too, as more SPVs come in and the quantum of InviTs and ReITs increase.

Clearly, direction has been provided by the Survey while also cautioning on inflation where a large part, which is imported is the challenge. It needs to be seen how the Budget is able to address this and how the Reserve Bank of India (RBI) views the same when it brings out its policy on the February 9.

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Madan Sabnavis is the Chief Economist at Bank of Baroda and author of "Hits & Misses: The Indian Banking Story". Views expressed here are his own.