Incomplete survey

In keeping with the trend established by former chief economic advisor Arvind Subramanian, Economic Survey 2020-21 is theoretical in bent — perhaps excessively so. It explains the Centre’s approach to the pandemic (the argument, being that a stringent lockdown saved lives in the hope that subsequent growth would restore livelihoods) and the need to take a relaxed view of the fiscal deficit in times of crisis. Ahead of the Budget, the Chief Economic Advisor makes a strong, if not unqualified, case for fiscal expansionism, while predicting a V-shaped recovery of 11 per cent GDP growth in real terms (15.4 per cent in nominal terms) next year. Despite India’s public debt to GDP ratio running close to 90 per cent, the Survey, in effect, has refuted the Reinhart-Rogoff thesis that a public debt level beyond this can hurt growth. It argues that as long as the rate of growth is more than interest rate, increasing public debt is not a danger — which suggests a decisive shift away from the Fiscal Responsibility and Budget Management Act. This is in tune with ‘modern monetary theory’ which takes a benign view of public debt. Economic Survey 2016-17 had suggested a shift to primary deficit, which does not include interest payouts, as the main guidepost. That said, it is necessary, as the Survey argues, to invest in asset creation.

The Survey is more convincing in its argument that a calibrated fiscal policy (India’s fiscal stimulus as a percentage of its GDP in the wake of Covid was lower than its peers) and a loose monetary policy was the right course of action this fiscal. It seems to be making the case that fiscal policy can be accommodative in 2021-22, as monetary accommodation tapers off. It is also right in mooting an asset quality review after the regulatory forbearance period, creation of a bad bank and governance reforms in banks. The Survey also makes an important point that health investments should go beyond Covid (read vaccinations). Hopefully, we’ll see this in action in the Budget that is being unveiled today.

However, a significant shortcoming of the Survey is its cursory treatment of two giant themes: the farm laws and a detailed assessment of the production-linked incentives (PLI) as a de facto new industrial policy. A study on how manufacturing can make a revival and substitute Chinese imports would have been welcome. Likewise, the Centre could have made a convincing case for the farm laws. The chapter on how growth, as against a focus on curbing inequality, can reduce poverty more effectively seems out of sync with the times. It is generally accepted that Covid has made the world a less equal place, with a K-shaped recovery — where the organised sector does well and leaves the rest behind — seeming a distinct prospect. The Survey’s silence on jobs creation and welfare nets for the unemployed should ideally be addressed in the Budget.