State of the Economy

Sectoral Trends

• Agriculture and allied sectors expected to grow by 3.9 per cent; industry by 11.8 per cent and services sector by 8.2 per cent in 2021-22.

Demand Trends

• Consumption: Total consumption is estimated to have grown by 7.0 per cent in 2021-22 with government consumption remaining the biggest contributor as in the previous year.
• Investment: Investment, Government’s policy thrust on quickening virtuous cycle of growth via capex and infrastructure spending has increased capital formation in the economy lifting the investment to GDP ratio to about 29.6 per cent in 2021-22, the highest in seven years. Private investment recovery is still at a nascent stage.
• Exports and Imports: India’s exports of both goods and services have been exceptionally strong so far in 2021-22. Imports are expected to grow by 29.4 per cent in 2021-22 surpassing corresponding pre-pandemic levels.

Barbell Strategy, Safety Nets & Agile Response

• “Barbell Strategy” that combined a bouquet of safety-nets to cushion the impact on vulnerable sections of society/business, with a flexible policy response.
• The Agile approach is a well-established intellectual framework that is increasingly used in fields like project management and technology development. In an uncertain environment, the Agile framework responds by assessing outcomes in short intervals and constantly adjusting incrementally.
• Apart from agile response, providing safety nets can help to overcome unpredictable negative outcomes.
• Monetary policy since the outbreak of the pandemic was calibrated to provide a cushion and support growth, but carefully controlled in order to avoid the medium term dislocations of excess liquidity

Macroeconomic Stability

Macroeconomic stability indicators suggest that the Indian Economy is well placed to take on the challenges of 2022-23.

Supply Side Reforms

• India’s economic response emphasized 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
  • sharp increase in capital spending by the Government

There are two common themes in India’s supply-side strategy:

1. Reforms that improve flexibility and innovation. This includes factor market reforms; deregulation of sectors like space, drones, geo- spatial mapping, trade finance factoring; process reforms like those in government procurement etc.
2. Reforms aimed at improving the resilience of the Indian economy. These range from climate/environment related policies; social infrastructure such as public provision of tap water, toilets, basic etc.

Growth Outlook

• Indian economy estimated to grow by 9.2 per cent in real terms in 2021-22 (as per first advanced estimates) subsequent to a contraction of 7.3 per cent in 2020-21.
• GDP projected to grow by 8-8.5 per cent in real terms in 2022-23.