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2 Economic Survey 2021-22

With the vaccination programme having covered the bulk of the population, economic
momentum building back and the likely long-term benefits of supply-side reforms in the
pipeline, the Indian economy is in a good position to witness GDP growth of 8.0-8.5 per
cent in 2022-23.

Nonetheless, the global environment still remains uncertain. At the time of writing, a new
wave in the form of the Omicron variant was sweeping across the world, inflation had
jumped up in most countries, and the cycle of liquidity withdrawal was being initiated
by major central banks. This is why it is especially important to look at India’s macro-
economic stability indicators and their ability to provide a buffer against the above
stresses.

Despite all the disruptions caused by the global pandemic, India’s balance of payments
remained in surplus throughout the last two years. This allowed the Reserve Bank of India
st
to keep accumulating foreign exchange reserves (they stood at US$ 634 billion on 31
December 2021). This is equivalent to 13.2 months of merchandise imports and is higher
than the country’s external debt. The combination of high foreign exchange reserves,
sustained foreign direct investment, and rising export earnings will provide an adequate
buffer against possible global liquidity tapering in 2022-23.

The fiscal support given to the economy as well as to the health response caused the fiscal
deficit and government debt to rise in 2020-21. However, a strong rebound in government
revenues in 2021-22 has meant that the Government will comfortably meet its targets for
the year while maintaining the support, and ramping up capital expenditure. The strong
revival in revenues (revenue receipts were up over 67 per cent YoY in April-November
2021) means that the Government has fiscal space to provide additional support if
necessary.

The financial system is always a possible area of stress during turbulent times. However,
India’s capital markets, like many global markets, have done exceptionally well and have
allowed record mobilization of risk capital for Indian companies. More significantly, the
banking system is well capitalized and the overhang of Non-Performing Assets seem to
have structurally declined even allowing for some lagged impact of the pandemic.

Vaccination is not merely a health response but is critical for opening up the economy,
particularly contact-intensive services. Therefore, it should be treated for now as a
macro-economic indicator. Over the course of a year, India delivered 157 crore doses
that covered 91 crore people with at least one dose and 66 crore with both doses. The
vaccination process for boosters and for the 15-18 year age group was also gathering
pace at the time of writing.

Inflation has reappeared as a global issue in both advanced and emerging economies.
India’s Consumer Price Index inflation stood at 5.6 per cent YoY in December 2021
which is within the targeted tolerance band. Wholesale price inflation, however, has been
running in double-digits. Although this is partly due to base effects that will even out,