Economic Survey 2020-21 points to strong V-shaped recovery

The Economic Survey 2020-21, tabled by Finance Minister Nirmala Sitharaman in Parliament, has observed that in spite of an unprecedented COVID-19 pandemic and consequential challenges, the industrial and infrastructure sectors of Indian economy are on a fast V-shaped recovery path. 

This strong V-shaped recovery of economic activity is further confirmed in the IIP data. 
 

According to the Economic Survey, the recovery is expected to be just the beginning of a strong era of economic growth of India.

India's real GDP to record a growth of 11 per cent in 2021-22 and nominal GDP by 15.4 per cent -- the highest since independence.
 

The Survey notes that the V-shaped economic recovery is supported by the initiation of a mega vaccination drive with hopes of a robust recovery in the services sector and prospects for robust growth in consumption and investment. 

The rebound will be led by the low base and continued normalization in economic activities as the rollout of COVID-19 vaccines gathers traction.
 

The Survey says that the fundamentals of the economy remain strong as gradual scaling back of lockdowns along with the astute support of Atmanirbhar Bharat Mission have placed the economy firmly on the path of revival.

This path would entail a growth in real GDP by 2.4 per cent over the absolute level of 2019-20-implying that the economy would take two years to reach and go past the pre-pandemic level. 
 

These projections are in line with IMF estimate of real GDP growth of 11.5 per cent in 2021-22 for India and 6.8 per cent in 2022-23. India is expected to emerge as the fastest growing economy in the next two years as per IMF.

The Survey says India's GDP is estimated to contract by 7.7 per cent in FY2020-21, composed of a sharp 15.7 per cent decline in the first half and a modest 0.1 per cent fall in the second half. 
 

Sector-wise, agriculture has remained the silver lining while contact-based services, manufacturing, construction were hit hardest, and have been recovering steadily. 

Government consumption and net exports have cushioned the growth from diving further down.
 

Accrding to the survey, high food prices remained a major driver of inflation in 2020. However, inflation in December 2020 fell back into the RBI's target range of 4+/-2 per cent to reach 4.6 per cent year-on-year as compared to 6.9 per cent in November. This was driven by a steep fall in food prices, particularly of vegetables, cereals, and protein products and favourable base effects.

On the supply side, Gross Value Added growth is pegged at -7.2 per cent in 2020-21 as against 3.9 per cent in FY:2019-20. Agriculture is set to cushion the shock of the Covid-19 pandemic on the Indian economy in 2020-21 with a growth of 3.4 per cent, while industry and services are estimated to contract by 9.6 per cent and 8.8 per cent during the year.

The survey notes that exports are expected to decline by 5.8 per cent and imports by 11.3 per cent in the second half of the year. India is expected to have a Current Account Surplus of 2 per cent of GDP in FY21, a historic high after 17 years.
 

The survey says that India's mature policy response to this "once-in-a-century" crisis provides important lessons for democracies to avoid myopic policymaking and demonstrates the significant benefits of focusing on long-term gains.

As anticipated, while the lockdown resulted in a 23.9 per cent contraction in GDP in Q1, 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. 
 

Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP growth in Q2 after the sharp decline in Q1.