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01

State of the Economy CHAPTER

The last two years have been difficult for the world economy on account of the COVID-19
pandemic. Repeated waves of infection, supply-chain disruptions and, more recently,
inflation have created particularly challenging times for policy-making. Faced with these
challenges, the Government of India’s immediate response was a bouquet of safety-nets
to cushion the impact on vulnerable sections of society and the business sector. It next
pushed through a significant increase in capital expenditure on infrastructure to build
back medium-term demand as well as aggressively implemented supply-side measures to
prepare the economy for a sustained long-term expansion. This chapter explains how this
flexible and multi-layered approach is partly based on an “Agile” framework that uses
feedback-loops, and the monitoring of real-time data.

Advance estimates suggest that the Indian economy is expected to witness real GDP
expansion of 9.2 per cent in 2021-22 after contracting in 2020-21. This implies that overall
economic activity has recovered past the pre-pandemic levels. Almost all indicators
show that the economic impact of the “second wave” in Q1 was much smaller than that
experienced during the full lockdown phase in 2020-21 even though the health impact
was more severe.

Agriculture and allied sectors have been the least impacted by the pandemic and the
sector is expected to grow by 3.9 per cent in 2021-22 after growing 3.6 per cent in the
previous year. Advance estimates suggest that the GVA of Industry (including mining and
construction) will rise by 11.8 per cent in 2021-22 after contracting by 7 per cent in 2020-
21. The Services sector has been the hardest hit by the pandemic, especially segments that
involve human contact. This sector is estimated to grow by 8.2 per cent this financial year
following last year’s 8.4 per cent contraction.

Total Consumption is estimated to have grown by 7.0 per cent in 2021-22 with significant
contributions from government spending. Similarly, Gross Fixed Capital Formation
exceeded pre-pandemic levels on the back of ramped up public expenditure on
infrastructure. Exports of both goods and services have been exceptionally strong so far
in 2021-22, but imports also recovered strongly with recovery in domestic demand as well
as higher international commodity prices.