The Economic Survey 2021-22 has underlined India’s roaring economic recovery, which the Union Budget 2022 reflects and bolsters. Overall economic activity has returned to pre-pandemic levels, however, the relative impact of Covid-19 has been irregular across sectors. Agriculture has been the least hit, while services (especially tourism and hospitality- dealt with explicitly in the Union Budget 2022) were hit the hardest. Considering the Indian economy’s dependence on services, the revival of services earnings has proven to be a welcome development. Consumer Confidence, Investor Sentiment in Manufacturing, Index of Industrial Production, mobility trends, and a range of other indicators suggest very strong demand growth across the board, along with positive sentiments. India’s cleanup of its banking system, incentives such as Production Linked Incentive (PLI) Schemes, and pandemic measures such as the Emergency Credit Line Guarantee Scheme (ECLGS) have enabled the economy to progress onto a newer cycle of growth. The Economic Survey 2021-22 has noted that growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and the availability of fiscal space to ramp up capital spending.
Inflation too has traditionally been the Indian economy’s principal macroeconomic concern. As demand recovers, supply chain disruptions due to the pandemic’s lingering effects has caused inflation to reappear globally. The hit on inflation is disproportionately arising from a rise in energy prices, resulting from high petroleum prices. India’s robust foreign exchange situation prevents any alarming situation, but imported inflation would require close monitoring. Supply chain disruptions on both the domestic and global levels are reflected in elevated measures such as trade costs, shipping costs, shipping times etc. To assuage the situation, India deployed a number of supply side reforms, which include deregulation of numerous sectors, simplification of processes, removal of legacy issues like ‘retrospective tax’, privatisation, PLI Schemes etc. Simultaneously, the modernisation of government procurement by the digitisation of the Government e-Marketplace (GeM), e-billing by all Union ministries, and the transition to single window portals across Government Services as announced in the 2022 Union Budget provide supply chain smoothening which have an impact against inflation.
Resonating the sentiment of India’s economic recovery, PM Narendra Modi also reiterated that, “Although Covid-19 affected economies of the entire world, including that of India. Yet our economy has recovered strongly”.
This blog has been authored by Ankita Sharma.