India’s economy is likely to have a V Shaped recovery with GDP growth pegged at 11 per cent in 2021-22, according to the Economic Survey presented by Finance Minister Nirmala Sitharaman in Parliament on January 29.
Claimed to be the highest GDP growth since independence, the survey notes that the V-shaped economic recovery was supported by initiation of a mega vaccination drive with hopes of recovery in the services sector and prospects for growth in consumption and investment.
The Economic Survey says that low base and continued normalisation in economic activities will lead the economic rebound, with rollout of COVID-19 vaccine gathering momentum. It said that the gradual scaling back of lockdowns along with support of Atmanirbhar Bharat Mission placed the economy firmly on the path of revival. This path would entail a growth in real GDP by 2.4 percent over the absolute level of 2019-20. The Survey notes that the projections are in tune with IMF estimates.
V-Shaped Economic Recovery Due to Mega Vaccination Drive, Robust Recovery in the Services Sector and Robust Growth in Consumption and Investment
The Survey also mentioned that the country’s GDP would contract by 7.7 per cent in 2020-21, with a 15.7 per cent decline in first half and 0.1 per cent fall in the second half. It says that agriculture remained the positive aspect while contact based services, construction and manufacturing were badly hit.
Though lockdown resulted in a 23.9 per cent contraction in GDP in Q1, the Economic Survey said the recovery has been a V-shaped one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators.
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The Survey notes that the year saw manufacturing sector’s resilience, rural demand cushioning overall economic activity and structural consumption shifts in booming digital transactions. Agriculture is set to cushion the shock of the pandemic on the economy in 2020-21 with a growth of 3.4 per cent in both Q1 and Q2.
It also says that a palpable V shaped recovery was observed in industrial production over the year. Bank credit remained subdued in 2020-21 amid risk aversion and muted credit appetite. The survey said observed that high food price was a major driver of inflation in 2020.
India’s GDP is Estimated to Contract by 7.7 Per Cent in FY2020-21
The external sector gave an effective cushion to growth with the country recording a current account surplus of 3.1 per cent of GDP in the first half. This was supported by strong services exports and weak demand leading to a sharper contraction in imports than exports. The Foreign exchange reserves rose to cover 18 months of imports in December 2020, the survey said.
India also remained a preferred investment destination in 2020-21 with Foreign Direct Investment pouring in. Net FPI inflows recorded an all-time monthly high of 9.8 billion dollars in November 2020. It said that exports would decline by 5.8 per cent and imports by 11.3 per cent in the second half of the year.
On supply side, the Gross Value Added growth is pegged at -7.2 per cent in 2020-21.
The Survey observed that the intense lockdown measures implemented at the beginning of the pandemic showed the country’s unique response in several ways. First, the policy response was driven by the findings from both epidemiological and economic research. Second, the country recognised that the Covid – 19 pandemic impacts both supply and demand in the economy.
In the initial months of the pandemic, the Survey notes that the country did not waste precious fiscal resources in trying to pump up discretionary consumption. On the other hand, the country focused on ensuring that all essentials were taken care of, which included direct benefit transfers to the vulnerable sections and the world’s largest food subsidy programme targeting 80.96 crore beneficiaries. India also launched Emergency Credit Line Guarantee Scheme to give relief to stressed sectors by helping entities sustain employment and meet liabilities, the Survey said.
The Survey points out that a monetary policy in unlock period ensured abundant liquidity and immediate relief to debtors through temporary moratoria, while unclogging monetary policy transmission.