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State of the Economy 3

India does need to be wary of imported inflation, especially from elevated global energy
prices.

Overall, macro-economic stability indicators suggest that the Indian economy is well
placed to take on the challenges of 2022-23. One of the reasons that the Indian economy
is in a good position is its unique response strategy. Rather than pre-commit to a rigid
response, Government of India opted to use safety-nets for vulnerable sections on one
hand while responding iteratively based on Bayesian-updating of information. This
“barbell strategy” was discussed in last year’s Economic Survey. A key enabler of this
flexible, iterative “Agile” approach is the use of eighty High Frequency Indicators (HFIs)
in an environment of extreme uncertainty.

Another distinguishing feature of India’s response has been an emphasis on supply-side
reforms rather than a total reliance on demand management. These supply-side reforms
include deregulation of numerous sectors, simplification of processes, removal of legacy
issues like ‘retrospective tax’, privatisation, production-linked incentives and so on. These
have been discussed in detail in the respective chapters. Even the sharp increase in capital
spending by the Government can be seen both as demand and supply enhancing response
as it creates infrastructure capacity for future growth. This year’s Survey particularly
highlights the importance of process reforms in a number of sectors while Chapter 11
provides a brief demonstration of the use of satellite images and geo-spatial data, both
recently deregulated sectors, for gauging economic development.

INTRODUCTION

1.1 Two years into the COVID-19 pandemic, the global economy continues to be plagued
by uncertainty, with resurgent waves of mutant variants, supply-chain disruptions, and a return
of inflation in both advanced and emerging economies. Moreover, the likely withdrawal of
liquidity by major central banks over the next year may also make global capital flows more
volatile. In this context, it is important to evaluate both the pace of growth revival in India as
well as the strength of macro-economic stability indicators. It is also essential to look at progress
in vaccination as this is not just a health response but also a buffer against economic disruptions
caused by repeated waves of the pandemic.

Economy recovers past Pre-Pandemic levels
1.2 The Indian economy, as seen in quarterly estimates of GDP, has been staging a sustained
recovery since the second half of 2020-21. Although the second wave of the pandemic in April-
June 2021 was more severe from a health perspective, the economic impact was muted compared
to the national lockdown of the previous year (see Figures 1 & 2). Advance estimates suggest
that GDP will record an expansion of 9.2 per cent in 2021-22. This implies that the level of real
economic output will surpass the pre-COVID level of 2019-20.