5 key takeaways from India's pre-budget survey for 2021

Dubai - The importance of this document rests on the fact that it looks at several angles and posits a roadmap for the future.



by

Suneeti Ahuja Kohli

Published: Sun 31 Jan 2021, 2:36 PM

The Economic Survey of India unveiled on Friday had all the markings of a fairly good assessment report, and projects an optimistic view of the future growth of the country. The document has made some bold statements and suggests an India-centric approach to growth and development that is not influenced by the assessment of global credit rating agencies.

The importance of this document rests on the fact that it looks at several angles of the Indian economy and posits a roadmap for the future.

Here are some key points made by the survey:

1. Growth: India’s GDP could grow at 11 per cent in the next financial year (April 2021 to March 2022), expects the survey. The forecast is in line with the expectations of the International Monetary Fund that notes the Indian economy will expand at 11.5 per cent in the next financial year. A key reason behind this double-digit number is the low base from this year. The Indian economy is expected to contract by over seven per cent in fiscal 2021, which makes the rebound look sharp. However, if we were to look at the absolute GDP numbers and not the percentage growth alone, the Indian economy will surely take some time to return to pre-Covid levels.

The V-shaped recovery is not expected to lead to a sudden spike in job creation or a quick rebound in key sectors in just a few months. The survey notes that even if India returns to an average GDP growth rate of 6.7 per cent by 2022-23, the real GDP would still only be 90-91 per cent of what it would have been without the pandemic. The Covid-19 pandemic has further pushed the goalposts of becoming $5 trillion economy.

2. Debt: The Survey makes a case for India to take on more debt, resting its claims on the solid credentials of the Indian economy. In the debate of whether growth leads to debt sustainability or whether fiscal austerity fosters growth, the survey makes a point for the Indian government to borrow more and spend more to support the economy. It notes that as long as the country’s GDP growth rate is higher than the interest cost, the debt will remain sustainable. However, no assurance is provided by the Survey that the country’s growth rate would remain on an upward trajectory in coming years. India’s growth rate had started falling even before the pandemic had hit.

3. Lift poor via growth not redistribution: The survey is making a case for lifting the poor out of poverty through the growth model. Higher the rate of growth for the country, higher will be the opportunities for people, and concomitant lifting of millions from the poverty trap.

It is correct that growth reduces poverty, but it also increases inequality. Redistribution of wealth through direct transfers and taxing wealth is as important as a good economic rate of growth.

4. Boost productivity through R&D investments: The survey is right in pointing that Indian companies should ramp up investments in research and development. Research and development make up only about 37 per cent of gross expenditure for Indian businesses compared to 68 per cent for businesses in each of the top 10 economies. Now, this is despite Indian companies having more liberal tax incentives, the survey showed.

Jugaad innovation has benefitted companies but relying on it risks missing the crucial opportunity to innovate, pointed the survey.

5. Healthcare should be priority: The survey has rightly pointed at the need for government to increase public spending on health from one per cent to 2.5 per cent to 3 per cent. An increase in public spending to this level can substantially reduce out of pocket expenses from Indian residents from the current level of 60 per cent to 30 per cent, which will be a relief and also boost trust in the medical and healthcare industry.

suneeti@khaleejtimes.com


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