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  • Raghav Sand

Economic Survey 2020-21: Realisations and Projections

The Economic Survey is the curtain raiser for the annual Union Budget. Prior to the Government’s annual exercise of projecting revenue and expenditure, the Chief Economic Advisor (CEA) lays down his remarks and estimates for the current and upcoming fiscal, respectively. The survey is the outcome of conversation and consultation within the Finance Ministry, along with inter-ministerial deliberations. At any moment, there are multiple decisions to be made regarding allocation of resources, and the COVID-19 pandemic has kept those charged with governance on their toes.

In March 2020, the Government of India (GoI) had to make a choice between lives and livelihood, and it chose the former. The unorganised sector was hit the hardest and some of the jobs lost may never fully recover. Agricultural sector was shielded by GoI’s proactive approach, while manufacturing and services shrunk at the peak of lockdown. As unlock measures were announced, normalcy returned in economic activity. Some industries will register pre-pandemic levels in the second half of calendar year 2021, while other may take a couple of extra quarters.

As our former President Dr A.P.J. Abdul Kalam said “When we tackle obstacles, we find hidden reserves of courage and resilience we did not know we had…..We only need to find them and move on with our lives”.

Free food grains to 80 crore people, promoting the use of mask and social distancing contributed in reducing the impact of COVID-19. There was no template or standard operating procedure in place to handle the pandemic and it will be harsh to point the fingers at the government. State governments and local governing bodies played their part in last mile connectivity of medical aid and other essentials.

Does that mean in a connected, complex and climatically vulnerable world, we will be ready for the next pandemic? This question will be answered in the time yet to come.

Economic recovery cannot be taken for granted on the basis of domestic consumption capacity and export potential. Targeted schemes and sector specific policies must be formulated to give a boost to income and savings. Unless something dramatic happens, the curve for COVID-19 is heading south and the most vulnerable sections of society cannot be left to be on their own at this juncture.

People at the extreme end of the income and wealth spectrum, i.e., the haves and have-nots, are able to take care for themselves or are beneficiaries of government schemes. Those in the middle find it difficult to meet ends and have nowhere to go. Economic development in the last two decades lifted millions out of poverty, but the pandemic reversed some of that good work.

V-shaped recovery

Most economic parameters point towards a V-shaped recovery. Though, there are many more alphabets that have found favour with learned economists and pundits. As the lockdown was announced in March 2020, the average balance in Pradhan Mantri Jan-Dhan Yojana accounts increased. This shows that people chose to cut down on non-essential expenditure and hoped for the worst to get over soon.

Expenditure, both from the government and individuals, is vital to keep the wheels of economy running. There are certain ministries who have not been able to spend their budgeted allocation for financial year 2020-21. This is worrying because even after the fiscal arithmetic was affected due to the pandemic and shortfall in divestment targets, money was available for the right causes. Infrastructure development projects kept some of the momentum intact, while greenfield industrial projects dried up.

The GoI has spent resources on promoting self-reliance (Atmanirbhar) in manufacturing, but assembling components domestically will not fulfil the true potential of a mostly inward-looking concept. As a nation, India needs to focus on internal consumption and figure out sectors for export promotion.

Bangladesh, our next-door neighbour, is a shining example of concerted and calculated efforts to increase per-capita income. Their model has paid dividends in garment manufacturing and we should not sit on past laurels.

Counter-cyclical Policy

“While fiscal policy is especially salient during an economic crisis, in general, fiscal policy must be counter-cyclical to smooth out economic cycles instead of worsening them. As seen for the United States and United Kingdom, the correlation between private sector and public sector net balances is almost perfectly negative.” This statement from the Economic Survey is a nudge by the CEA for the Government to ramp up spending across sectors.

Chart Courtesy: Economic Survey 2020-21

While counter-cyclical fiscal policy is necessary to smooth out economic cycles, it becomes critical during an economic crisis. Economic theory, in effect, makes the same recommendation: in a recessionary year, Government must spend more than during expansionary times. Such counter-cyclical fiscal policy stabilizes the business cycle by being contractionary (reduce spending/increase taxes) in good times and expansionary (increase spending/reduce taxes) in bad times.

In a country like India, which has a large workforce employed in the informal sector, counter-cyclical fiscal policy can be a game-changer.

India’s Sovereign Debt Rating: Poor Mood Swings

Credit ratings factor in the ability and willingness of borrower to meet its obligations. India has a zero sovereign default history and even then, its rating is at investment grade. The Economic Survey cautions the government not to make fiscal policies that would boost its rating. There is an inherent bias in ratings of agencies such as Moody’s and Standard and Poor’s. Given its size and past record, the fifth largest economy in the world deserves more respect.

Chart Courtesy: Economic Survey 2020-21

Need for Increased Health Expenditure by Government

Increased prioritization of healthcare in the central and state budgets is important as it crucially impacts how much protection citizens get against financial hardships due to out-of-pocket payments (OOP) made for healthcare. OOP for health increase the risk of vulnerable groups slipping into poverty because of catastrophic health expenditures. Where public healthcare expenditure as a per cent of GDP is less than 3 per cent, OOP expenditure as a share of total health expenditure drops precipitously when public health expenditure increases.

For instance, an increase in public health expenditure from the current levels in India to 3 per cent of GDP can reduce the OOP expenditure from 60 per cent currently to about 30 per cent. An increase in government healthcare spending over a decade in varied countries such as China, Indonesia, Philippines, Pakistan and Thailand significantly decreased the OOP expenditures of its citizens.

The Bare Necessities

Access to the bare necessities such as housing, water, sanitation, electricity and clean cooking fuel is essential to live a decent life. Compared to 2012, access to the bare necessities has improved across all States in the country in 2018. Access to bare necessities is the highest in the States such as Kerala, Punjab, Haryana and Gujarat while it is the lowest in Odisha, Jharkhand, West Bengal and Tripura.

Budget 2021: Bold and Dutiful

Prime Minister Narendra Modi ahead of the beginning of the budget session in Parliament on January 29, Friday, said Union Finance Minister Nirmala Sitharaman had to give four-five mini-budgets in the form of economic packages in 2020 and expressed confidence that the upcoming budget would also be seen as part of that series. A citizen has the right to seek policy measures which address individual and societal aspirations. Convergence of expectations and possibilities can be achieved if the Government resolves to be bold, as far as beauty is concerned, it is in the eye of the beholder.

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