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Economic Survey 2020-21

The Economic Survey 2020-21 was tabled in the Parliament by the Finance Minister Smt. Nirmala Sitharaman today. The Survey presents a review of the developments in the economy over the last year while presenting an outlook for the next financial year.  

Some of the key highlights from the survey are listed below.   

  • India on the path of a V-shaped recovery. Economy to contract 7.7% in 2020-21 and grow 11% in 2021-22.
  • Rebound to be led by low base and continued normalization in economic activities as the rollout of COVID-19 vaccines gathers traction.
  • Government consumption and net exports cushioned the growth from diving further down, whereas investment and private consumption pulled it down.
  • The recovery in second half of FY2020-21 is expected to be powered by government consumption, estimated to grow at 17% YoY.
  • Exports expected to decline by 5.8% and imports by 11.3% in the second half of FY21
  • India expected to have a Current Account Surplus of 2% of GDP in FY21, a historic high after 17 years.
  • India remained a preferred investment destination in FY 2020-21 with FDI pouring in amidst global asset shifts towards equities and prospects of quicker recovery in emerging economies.
  • Record-high monthly GST collections have marked the unlocking of industrial and commercial activity. 
  • Monthly GST collections have crossed the Rs. 1 lakh crore mark consecutively for the last 3 months, reaching its highest levels in December 2020 ever since the introduction of GST.
  • The external sector provided an effective cushion to growth with India recording a Current Account Surplus of 3.1% of GDP in the first half of FY21. 
  • Headline CPI inflation averaged 6.6% during April-December,2020 and stood at 4.6% in December, 2020, mainly driven by rise in food inflation (from 6.7% in 2019-20 to 9.1% during April-December, 2020, owing to build up in vegetable prices)

 Trade 

The survey notes that resilient software services exports have contributed towards the current account surplus, as seen for the first time in 17 years, which in turn has led to a rise in the RBI’s foreign exchange reserves. Contraction in imports effected by the Covid-19 pandemic have also had a significant role in the current account surplus. The survey notes that Bangladesh, who has emerged as a dominant exporter had a compound annual growth rate of 8.6% during 2009-2019, 0.9% higher than that of India. The top export commodities of Bangladesh coincide with the commodities in which it has the highest comparative advantage, and together they account for more than 90% of total exports of Bangladesh. In India, the top five export commodities are technology and capital-intensive, contribute around 40% of total exports, and none coincide with products in which India has the highest comparative advantage. This holds lesson for India to build specialization in products in which it is competitive. Further, the survey suggests that various initiatives undertaken to promote exports, including Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, emphasis on improvement of trade logistics infrastructure through digital initiatives (such as real-time monitoring of operational performance and asset utilization of various logistics infrastructure, integrating all logistics related digital portals like ICEGATE, SWIFT etc.), would go a long way in enabling ‘ease of doing exports’ thereby strengthening India’s exports.  

Taxation

Income tax refunds to nearly 8.2 lakh small businesses (worth INR 5200 crores) has been issued to help MSMEs to carry on business activities without pay cuts and layoffs in these challenging times. Monthly GST collections have crossed Rs 1 lakh crore in the last three months, with the highest ever collection in Dec 2020. The recovery in GST collection is a combined effect of rapid economic recovery post pandemic and nation-wide drive against GST evaders and fake bills along with many systemic changes introduced recently, which have led to improved compliance.

Industry

Industry saw a sharp decline during lockdown. However, IIP and eight core index shows considerable recovery. Further recovery expected with Govt’s increased capital expenditure, the vaccination drive and reform measures. India remained a preferred investment destination in FY 2020-21 with $30bn received till September 2020.

IT-ITeS

India ranks number one in Information and Communications Technology services exports as a percentage of total trade. Shows India’s leadership in the global ICT services industry.  Significant reforms undertaken in FY 21 – Relaxation of OSP Terms & conditions & Consumer Protection rules, 2020 – would significantly expand access to talent, increase job creation, make India a global hub for digital services and catapult the sector to the next level of growth and innovation.

Innovation

India entered the top 50 innovating countries for the first time in 2020 (GII Report 2020). In India, 68% of the gross expenditure on R&D is contributed by the government. The private sector in India contributes much lesser compared to other top 10 economies in spite of the liberal tax incentives available in India. Also, Indian residents file only 36% of total patents filed in India against an average 62% in other large economies.

Healthcare

The pandemic has emphasized the importance of healthcare sector. An increase in public spend from 1% to 2.35% of the GDP, as envisaged in the national Health Policy, 2017 can decrease out of pocket expenditure from 65% to 35% of the overall healthcare spend. Also, telemedicine shows impressive growth post Covid. Almost a million consultations have been done via eSanjeevani OPD platform since Apr 2020. Investment in internet access will further boost telemedicine.

Banking

Gross Non-Performing Advances (GNPA) ratio (i.e. GNPAs as a percentage of Gross Advances) of Scheduled Commercial Banks decreased from 8.2 per cent at the end-March 2020 to 7.5 per cent at end-September 2020. In case of Public Sector Banks (PSBs) it decreased from 10.25 per cent at the end-March 2020 to 9.4 per cent at end-September 2020. The focus on resolution of stressed assets had to take a backseat last year due to Covid-19 pandemic and therefore Govt suspended initiation of fresh cases under IBC, 2016.

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