The Economic Survey 2020-21 has compared the economic recovery in India after the pandemic attack to the recent miraculous test series win of the Indian cricket team in Australia. While the despair around the 23.9% economic contraction in Q1FY21 due to the nationwide lockdown compares well with the disastrous score of 36 all out of the Indian team in the first test, it is still perhaps premature to say we have achieved a convincing victory against the virus with a ‘V’ shaped economic recovery. Nevertheless, the Survey rightly points out to some healthy green shoots visible in the economy after the pandemic storm which needs to be nurtured through further policy measures through the Union Budget and beyond, for a strong and sustainable economic revival.

The Covid pandemic has undeniably been an unprecedented challenge for governments across the world including the Indian Government. The survey explains, at length the rationale behind the immediate and the phased policy responses of the government in close co-ordination with RBI. Admittedly, the stringent lockdown did help to restrain the upward trajectory of the mortality curve and provide relief to the beleaguered health infrastructure of the country. It was followed by financial support to the vulnerable sections of the society through Pradhan Mantri Garib Kalyan Yojana (PMGKY) to address the loss of livelihoods along with debt moratorium and liquidity provisions for businesses. With a gradual phase out of the lockdown, further announcements were made through AtmaNirbhar 2.0 and 3.0 programmes to revive consumption and investment demand. While many economists have pointed out to the inadequacy of the direct fiscal support to the economy in the current year including cash handouts, the Survey has argued that higher government spending in a supply challenged environment could have increased the inflation risks and may have also led to a meaningful impact on consumption demand.

The Survey has also rightly highlighted several important structural reforms announced during the second phase of the pandemic period. While the farm sector reforms have got embroiled in a controversy, the reclassification of MSMEs, mining sector reforms, the PLI scheme for 10 sectors and some changes in the extant labour laws are expected to augur well for fresh private sector investments over the medium term.

The survey reports also argues for the continuation of a fiscally expansive policy to nurture the green shoots of growth despite the significant impairment in the fiscal figures. This is clearly an imperative for the government and the survey quotes several theories to justify additional government borrowings in the near term to strengthen the economy and therefore, the tax base. The fiscal deficit will clearly be unusually elevated beyond the acceptable levels in FY21 and it is unlikely that it can be normalised to less than 4.0% within the next 2 years. While the global rating agencies may have concerns on the increased debt to GDP for India, it surely needs to be looked at from a slightly longer term perspective given the extraordinary nature of the pandemic driven crisis.

The pandemic has brought the spotlight on the criticality of a strong healthcare sector which can make an economy less vulnerable to pandemic risks. While the Government has been emphasizing public and private investments in the sector and increasing the penetration of subsidised health insurance schemes, the survey correctly urges the government to step up the investment in the sector to around 3.0% from the current levels of 1.0%.

One of the other takeaways of the Economic Survey 2020-21 is the cautionary advice on the extension of the regulatory dispensation and the forbearance provided by the lenders. It can’t surely be denied that there has been a severe impact of the pandemic particularly on smaller enterprises and in sectors which has been hit disproportionately more by social distancing and the lockdowns. Accordingly, the loan moratorium period was followed by the OTR scheme and also the ECLGS programme that provided additional funding to the stressed businesses. Nevertheless, the regulators and the government have to suitably calibrate the withdrawal of these relief schemes to mitigate the build up of systemic risks that was in evidence in the aftermath of the global financial crisis. The survey has further advocated the adoption of another Asset Quality Review (AQR) and proactive infusion of capital in the financial sector to keep such systemic risks under control.