State of Indian economy, according to the Economic Survey 2022

The annual pre-Budget Economic Survey, compiled by Principal Economic Advisor Sanjeev Sanyal this year, starts by highlighting India’s agile policy response to the Covid-19 shock.

The ‘Agile’ framework is based on feedback-loops and real-time monitoring of actual outcomes, differing from the conventional  ‘waterfall’ strategy of introducing front-loaded stimulus packages. The Agile approach is aided by 80 High Frequency Indicators (HFIs) in an environment of extreme uncertainty such as now. 

The Survey reverted to the single-volume format after eight years as the two-volume format was ‘becoming unwieldy’, according to Sanyal. 

The Economic Survey projects India’s GDP to grow 8-8.5% next fiscal, supported by widespread vaccine coverage, gains from supply-side reforms, robust export growth and the availability of fiscal capacity to ramp up capital expenditure when required. The forecast is below the IMF’s projection of 9%. 

The survey states that vaccination should not be seen merely as a health response, but as a macroeconomic indicator for now.

The GDP projection is based on the assumption that there will be no further debilitating pandemic related economic disruption, monsoon will be normal, withdrawal of global liquidity by major central banks will be broadly orderly, global supply chain disruptions will steadily ease over the course of the year and oil prices will be in the range of $70-75 per barrel.

While the first four assumptions seem rational, the fifth on oil prices looks hopeful as analysts expect Brent crude to average at around $80 a barrel this year or even higher due to geopolitical risks emanating from eastern Europe. Brent topped $90 last week for the first time since 2014 and may go up to $120 over the next few months.

However, the Economic Survey does say that India needs to be wary of imported inflation, especially from elevated global energy prices. 

Interestingly, the Economic Survey uses satellite imagery to highlight India’s infrastructural growth. For example, satellite photos of night-time Luminosity between 2012 and 2021 shows expansion of electricity supply, economic activity and urban expansion. Other images show the extent of urban expansion in certain localities of cities like Gurugram, Bengaluru and Mumbai over time. (4 images below)

The survey acknowledges that India’s economic response to the pandemic emphasised more on supply-wide reforms than on the demand side. Some of these include production-linked incentive schemes, removal of retrospective tax, liberalised guidelines for BPO sector, telecom sector reforms and revising definition of MSMEs.  

Whether the Budget will offer demand boosting measures such as cutting income or fuel taxes and enhancing income tax deductions will be known in a few hours.