Economic Survey propagates policy agility amid pandemic-induced uncertainty

Highlights govt's 'Barbell Strategy' to offer a bouquet of safety-nets to cushion impact on vulnerable sections/business, with a flexible response that uses feedback-loops with real-time adjustments

India’s Economic Survey acts as a report card of the economy presented by the government that also carries a prescriptive policy blueprint with a near-to-medium term horizon. Released on the eve of the Union Budget, it also offers a sneak peek into the macroeconomic framework underpinning the upcoming Union Budget.

The Economic Survey 2021-22, in its second post pandemic avatar, highlights the challenging policy terrain amidst a cross-current of uncertainty caused by repeated waves of Covid. In this context, the Survey highlights the use of ‘Barbell Strategy’ by the government to offer a bouquet of safety-nets to cushion the impact on vulnerable sections of society/business, with a flexible policy response based on ‘Agile’ approach that uses feedback-loops with real-time adjustments.

This, in our opinion, places greater emphasis on virtues of policy nimbleness amidst times of unprecedented uncertainty, which could render conventional economic assessment inadequate. It is comforting to note that the Survey espouses leverage of high frequency indicators to guide short-term policy responses.

Fascinatingly, the Survey advocates broadening the currently niche usage of geo-spatial data and cartographic techniques – to track, compare and represent longer term developments. High speed connectivity coupled with extensive mobile phone penetration will make next generation technologies like geo-tagging an imperative for policy monitoring across various policy schemes while driving the next wave of start-ups.

Another unique feature of India’s economic response to the pandemic has been its emphasis on supply-side reforms rather than complete focus on demand support. This stems from government’s belief that while reclaiming of pre Covid economic status is imminent, the post Covid economy will get characterized by ongoing changes in technology, consumer behaviour, geo-politics, supply-chains, etc.

With this context, policymakers have carved out supply side strategy with reforms that:

·       improve flexibility and innovation to deal with long-term unpredictability of the post-Covid world

·       improve the inherent resilience of the Indian economy

With gradually percolating gains from supply-side reforms, widespread vaccination coverage, ramped up public capex (aided by robust revenue collection that helps to generate fiscal space to spur growth), and relatively resilient external demand, the Survey expects India’s FY23 GDP growth at 8-8.5 per cent, making it one of the fastest growing major economies in the world for second year in a row. In addition, the Survey also notes substantial improvement in India’s external vulnerability metrics, which it expects to play a crucial role in insulating the Indian economy from likely financial market volatility triggered by unwinding of extremely accommodative monetary policy by key central banks.

While 8-8.5 per cent GDP growth in FY23 is a possible scenario, we believe there could be some downside from: (i) tapering of pent-up demand vis-à-vis FY22, (ii) moderation in global trade activity (as per IMF’s recent forecast), (iii) adverse spill over from high inflation (esp. from global commodity prices), (iv) roll-off of fiscal impulse in key economies, (v) rising global interest rates.

Overall, the Survey refrains from big bang ideations and instead focuses on supply-side ‘process reforms’ to attract private investments while projecting government as a facilitator.

The author(s) are with QuantEco Research. Views expressed here are their own.