InvestorQ : Can you tell me the highlights of the Economic Survey that was presented by the Finance Minister ahead of the Union Budget?
Tisha Malhotra made post

Can you tell me the highlights of the Economic Survey that was presented by the Finance Minister ahead of the Union Budget?

diksha shah answered.
2 years ago

The economic survey is normally presented on the working day prior to the actual Union Budget presentation in the Lok Sabha. The Economic Survey is a very comprehensive document that captures the gist of the economy for the last year and the key issues for the budget. Here are some key points to know.

· The Economic Survey expects a V-shaped recovery in the economy in the financial year 2022, even as the economy is likely to contract by -7.7% in FY21. The survey estimates that industry will contract this year by over 9.5% while services will contract by over 8%. However, agriculture is expected to grow by 3.4%.

· India is expected to close FY21 with FPI flows of over $28 billion to $30 billion. In addition, the survey also anticipates that the Indian economy could end up with a surplus in the trading account which could be as high as 2% of GDP. This is the first time in 17 years that India would be reporting such a large current account surplus.

· Most importantly, the survey has also highlighted that the fiscal deficit could overshoot 7% in FY21 and rise to around 4-5%. However, the survey has also reiterated that the focus should continue to be on growth and not on fiscal deficit control for the time being. In this regard, the survey also pointed out that heavy infrastructure spending cannot be compromised.

· In an interesting move, the survey has called upon the global rating agencies to review their sovereign rating methodology. The logic of the argument is that the current methodology does not represent softer aspects like the willingness and ability to service debt on time as well as the zero levels of sovereign debt in India. The view is that the real story of India is not being captured in the ratings assigned.

· While applauding the government for saving millions of lives by its timely and stringent response to COVID, the survey has also highlighted the need to increase healthcare spend in the Union Budget from 1% of GDP to 2.5% or 3% of GDP. That would bring India closer to emerging market benchmarks and also ensure that situations like COVID can be either prevented or dealt with lesser pain.

· Finally, the Survey has spoken about two very interesting aspects. It has called upon government to liberalize processes citing the example of how much longer it takes to shut down a company in India. At the same time, the survey has also cautioned businesses not to take regulator forbearance for granted. After all, such forbearance has to be an exception not the rule.

In short, the survey has been a mixed tale of optimism laced with doses of warnings where warranted.