The Economic Survey of 2021-22, recently tabled in Parliament by the Finance Minister, has brought to light numerous challenges and suggestions pertinent to India’s economic scenario. The survey offers a comprehensive overview of the country’s financial health, along with insights on inflation, capital volatility, and employment issues that have emerged amidst the pandemic-induced disruptions.
Increased Inflation: The Challenges
The Economic Survey 2022 highlights increased inflation as a key concern for the Indian economy. This surge is attributed primarily to supply chain disruptions and sluggish economic growth. The withdrawal of stimulus in developed economies for FY 2022-23 could also impact capital flows into India, exacerbating the situation.
Other factors contributing to global inflation include the rise in energy, food, non-food commodities, input prices, alongside disruption of global supply chains and the escalating freight costs worldwide during the year 2021-22. The survey further warns of a potential “imported inflation” scenario in India due to stimulus spending in developed economies and pent-up demand during the pandemic.
Volatility in Capital
The survey notes the initial phase of liquidity withdrawal by major economies, which was extended during the pandemic as stimulus checks and relaxed monetary policy to stimulate economic recovery. However, rising inflation is leading to the winding down of pandemic-related stimulus. The survey suggests that withdrawal of liquidity by major central banks over the subsequent year may render global capital flows more unpredictable, thereby influencing capital flows adversely and exerting pressure on India’s exchange rate.
India’s increasing imports could further strain the exchange rate if capital flows to India decline as a result of a stimulus withdrawal in developed nations.
Employment Concerns
The survey outlines a dearth of jobs as a primary concern for the Indian economy, with unemployment levels and labour force participation rates trailing behind pre-pandemic figures. Despite some improvements since the pandemic’s onset, these rates have yet to rebound to their pre-pandemic levels, as per data from the PLFS.
Major Suggestions
In response to these challenges, the survey proposes several recommendations. It emphasises the development of a supply-side strategy in response to the long-term unpredictability of the post-Covid world, arising from changes in consumer behaviour, technological advancements, geopolitics, climate change, and their possibly unpredictable interplay.
The survey advocates for a diversified energy source mix with fossil fuels playing an important role, balanced with a focus on solar PV and wind farm storage to ensure on-demand energy supply. It recommends accelerating the transition from conventional fossil fuel-based sources and promoting research and development for a smooth switch to renewable energy sources.
The survey also suggests a standardized framework for cross-border insolvency, as the current Insolvency & Bankruptcy Code (IBC) lacks a standard instrument for restructuring firms involving cross-border jurisdictions.
Finally, it encourages adopting the Agile approach to policy making with 80 high-frequency indicators in an “extreme uncertainty” environment, utilizing real-time data for feedback-based decision making.