IGI Logo

State of the Economy

The impact of the Coronavirus (COVID-19) pandemic on economic activities continued in FY22, with the emergence of new COVID variants disrupting recovery in the growth process. After a 7.3% contraction in the GDP in FY21, the economy was bracing for double-digit growth in FY22. Last year’s economic survey projected GDP growth at 11% for FY22. However, due to repeated restrictions following the new COVID mutants and the second wave of the pandemic, growth momentum was constrained in several contact-intensive sectors of the economy.

The advance estimate of GDP for FY22 shows that economic recovery is yet to take firmer roots. The estimated GDP growth for FY22 in constant prices at 9.2% looks optimistic as the impact of the sharp rise in cases and the effect of shortages in crucial inputs and increase in input costs are yet to be ascertained. The agriculture sector has continued to grow, albeit at 3.5% to 4 %, but recovery in both the industry and service sectors has been constrained due to the constraints caused by the non-availability of semiconductors, supply shortages in coal and power outages. Moreover, even if we assume that the GDP will grow at 9.2% in absolute terms, to Rs 1,47,53,535 crore, it is higher than the 2019-20 estimate by just 1.2%. Surely, proactive government interventions are needed not merely to revive growth to pre-pandemic levels, but also to increase the medium-term growth trajectory, and this requires an acceleration in the pace of reforms to remove structural rigidities and the creation of favourable conditions for new investments and growth.

The growth outlook for the next fiscal is clouded by various downside risks, including new COVID-19 outbreaks, rising commodity prices, mounting inflationary expectations, lingering supply bottlenecks and not-so-favourable global recovery amid diminished fiscal and monetary policy support. In such an environment, where several sectors of the economy are still functioning below potential, preparing the budget is, by no means, an easy task. To restore consumer confidence, which was severely dented by the pandemic waves, and to sustain the growth recovery, the Budget is expected to provide support through various measures. It will also have to give clear policy signals towards fast-tracking economic revival.

FY22 Budget Estimates and Expectations for FY23

As per the latest data (provisional) reported by the Controller General of Accounts (CGA), the central government was able to collect 76% of budgeted receipts during April to November 2021 and spent 59.6% of the targeted budgeted expenditure. The achievement in implementing capital expenditure projects was 49.4%. The revenue collection so far has been 73.5% of the budget targets, and the cumulative deficit stood at about 46.2% of the budget estimates for FY22. Revenue receipts are up by 67% over the corresponding period in the previous year, and yet they are 3.4% less compared to the 2019-20 levels. In the remaining part of the current fiscal, high revenue buoyancy is likely to continue and may exceed the budget estimates by a substantial margin. The government is estimated to garner additional revenue over the budget estimate by about Rs. 1.7 trillion from higher tax revenue collections and dividends from the RBI.

To Read Complete Report & Disclaimer Click Here

Above views are of the author and not of the website kindly read disclaimer