Overly optimistic
The gushing and self-congratulatory tone of the Economic Survey 2021, presented by Union Finance Minister Nirmala Sitharaman on the opening day of the Budget session of Parliament, has missed certain key issues bothering the nation. Growing unemployment, plight of migrants, collapse of small and medium businesses and widening economic disparities are too glaring to ignore. While it is desirable to be optimistic about growth, the Survey must have openly acknowledged the problem areas and come up with solutions. India’s success in turning the corner in the post-pandemic world will largely depend on how well it is prepared to tackle the problems confronting the common man. The lockdowns and prolonged restrictions have resulted in the collapse of many businesses and a dip in tax collections. The Gross Domestic Product (GDP)—the total value of goods and services produced in the country—fell 23.9% in April-June 2020, and then again by 7.5% in July-September. India has now slipped into a technical recession, which takes place when real or inflation-adjusted GDP contracts in two successive quarters. From being toasted as an engine for global growth with the status of the world’s fastest-growing major economy, India’s GDP has fallen for two successive quarters. The question now is how long will the impact last and what sort of interventions are required to boost demand. The Economic Survey’s projection of 11% real GDP growth rate in 2021-22 is in tune with the International Monetary Fund’s forecast. The nominal GDP growth has been estimated at 15.4%, implying an assumption of 4.4% inflation during the year.
The optimism of the Finance Ministry is based on the assumption of a supply-side reforms push and easing of regulations, a big thrust to infrastructural investments, boost to the manufacturing sector through the Production-Linked Incentive (PLI) scheme, recovery of pent-up demand for the services sector, increase in discretionary consumption following the roll-out of the vaccine and pick up in credit in the wake of adequate liquidity and low interest rates. However, the harsh reality is that only a few sectors are recovering while others are still in dire straits. As Sitharaman prepares to present her third Budget, one key factor that she needs to consider is the plight of millions of people who have lost their jobs and of many people in the informal sector who continue to suffer loss of incomes. According to the Centre for Monitoring Indian Economy, the unemployment rate had touched 9.1% in December. A targeted intervention from the government is needed in this area. This will mean a consumption booster shot through continued payouts for another year to those at the bottom of the pyramid and increased allocations for the employment guarantee scheme.
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