CEA says it is time to switch fiscal gears from cautious stance to ‘counter-cyclical’ push; Rapid vaccine rollout can boost ailing services sectors, spur consumption and investment; India’s response to ‘once-in-a-century’ crisis a lesson for democracies to avoid myopic policy.
India’s economy is firmly in the middle of a V-shaped recovery and will bounce back to record 11% growth in 2021-22 after an estimated 7.7% contraction this year, according to a ‘conservative’ estimate in the Economic Survey for 2020-21. The Survey termed the growth a ‘lockdown dividend’ from the country’s stringent response to the COVID-19 pandemic.
Making a strong pitch for the government to loosen its purse strings to spur the economy with a ‘counter-cyclical fiscal push’ till the country returns to its pre-COVID growth path, the Survey tabled in Parliament on Friday defended the conservative fiscal stimulus during the initial phase of the pandemic, stating that pushing down on the accelerator while the brakes are clamped ‘only wastes fuel’.
Comparing the Indian economy’s resurgence from the collapse in the first two quarters of the year to the country’s recent cricketing fortunes, which recovered swiftly from the lows of being bowled out for 36 in the Adelaide test to register an unlikely series win against Australia, Chief Economic Advisor Krishnamurthy Subramanian indicated that it was time to switch fiscal gears to a more aggressive approach.
“Like in cricket, even in the economy, timing matters. When the ball is swinging around a lot, there’s a lot of uncertainty, you need to play carefully and focus on survival and the essential items… you play like (Cheteshwar) Pujara. Once the swing is gone, you bat like Pant, which is what the Indian economy and policy makers are now focused on,” he said.
“Wait for one day, I am sure you will see both Pujara and Pant in action,” he said at a press conference after the Survey was tabled, indicating that the Union Budget for 2021-22 could be cautiously expansionary.
“The V-shaped economic recovery while avoiding a second wave of infections make India a sui generis case in this unique, synchronized global recession,” the Survey said, adding that a rapid vaccination roll-out this year could boost recovery in the services sectors as well as stir up private consumption and investment.
With India expected to emerge as the fastest growing economy in the next two years as per IMF, the Survey argued that the country’s “mature policy response to this ‘once-in-a-century’ crisis provides important lessons for democracies to avoid myopic policy-making and demonstrates the significant benefits of focusing on long-term gains”.
Economic Survey | ‘New farm laws herald new era of market freedom’
While India’s absolute growth numbers may be remarkable in 2021-22 due to the low base effect, returning to pre-pandemic growth and output levels would take longer.
“The global economy, including India, has been set back in time by the pandemic induced crisis. In the five years before 2020-21, Indian economy grew at an average growth of 6.7%. In 2021-22, a sharp recovery of real GDP growth of 10%-12% is expected based on a low base effect and inherent strengths of the economy. It is assumed that the economy grows at its trend growth rate of 6.5% in 2022-23 and 7% in 2023-24, aided by the structural reforms,”the Survey noted.
“If two scenarios of 12% growth and 10% growth in 2021-22 are envisaged, India would be 91.5% and 90% below the trend level of output, respectively, by 2023-24,” it said.