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New Delhi : India’s real GDP is to record a growth of 11 per cent in 2021-22 and nominal GDP by 15.4 per cent, the highest since independence. The V-shaped economic recovery is supported by the initiation of a mega vaccination drive with hopes of a robust recovery in the services sector and prospects for major growth in consumption and investment.

Union Finance & Corporate Affairs Minister Nirmala Sitharaman presented the Economic Survey 2020-21 in Parliament on January 29, 2021. which states that the rebound will be led by the low base and continued normalisation in economic activities as the rollout of COVID-19 vaccine gathers traction.

The fundamentals of the economy remain strong as gradual scaling back of lockdown along with the astute support of Atmanirbhar Bharat Mission have placed the economy firmly on the path of revival. This path would entail a growth in real GDP by 2.4 percent over the absolute level of 2019-20-implying that the economy would take two years to reach and go past the pre-pandemic level.

These projections are in line with IMF estimate of real GDP growth of 11.5 per cent in 2021-22 for India and 6.8 per cent in 2022-23. India is expected to emerge as the fastest growing economy in the next two years as per IMF, according to a PIB release.

The Survey says India’s mature policy response to this “once-in-a-century” crisis  provides important lessons for democracies to avoid myopic policymaking and demonstrates the significant benefits of focusing on long-term gains.  India adopted a unique four-pillar strategy of containment, fiscal, financial, and long-term structural reforms. Calibrated fiscal and monetary support was provided given the evolving economic situation cushioning the vulnerable in the lockdown and boosting consumption and investment while unlocking mindful of fiscal repercussions and entailing debt sustainability. A favorable monetary policy ensured abundant liquidity and immediate relief to debtors via temporary moratoria while unclogging monetary policy transmission.

The Survey says India’s GDP is estimated to contract by 7.7 per cent in FY2020-21, composed of a sharp 15.7 per cent decline in first half and a modest 0.1 per cent fall in the second half. Sector-wise, agriculture has remained the silver lining while contact-based services, manufacturing, construction were hit hardest, and have been recovering steadily. Government consumption and net exports have cushioned the growth from diving further down.

As anticipated, while the lockdown resulted in a 23.9 per cent contraction in GDP in Q1, the recovery has been a V-shaped one as seen in the 7.5 per cent decline in Q2 and the recovery across all key economic indicators. Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP growth in Q2 after the sharp decline in Q1.

Bank credit remained subdued in FY 2020-21 amid risk aversion and muted credit appetite. However, credit growth to agriculture and allied activities accelerated to 7.4 per cent in October 2020 from 7.1 per cent in October 2019. October 2020 saw resilient credit flows to sectors such as construction, trade and hospitality, while bank credit remained muted to the manufacturing sector. Credit  growth to the services sector accelerated to 9.5 per cent in October 2020 from 6.5 per cent in October 2019.

High food prices remained a major driver of inflation in 2020. However, inflation in December, 2020 fell back into the RBI’s target range of 4+/-2 per cent to reach 4.6 per cent year-on-year as compared to 6.9 per cent in November. This was driven by a step fall in food prices, particularly of vegetables, cereals, and protein products and favorable base effects.

Dwelling on the sectoral trends, the Survey says that the year also saw manufacturing sector’s resilience, rural demand cushioning overall economic activity, and structural consumption shifts in booming digital transactions. It adds that Agriculture is set to cushion the shock of the COVID-19 pandemic on the Indian economy in 2020-21 with a growth of 3.4 per cent in both Q1 and Q2.

The external sector provided an effective cushion to growth with India recording a current account surplus of 3.1 per cent of GDP in the first half of the year, largely supported by strong services exports, and weak demand leading to a sharper contraction in imports (with merchandise imports contracting by 39.7%) than exports (with merchandise exports contracting by 21.2%). Consequently, the Foreign exchange reserves rose to cover 18 months of imports in December 2020.

External debt as a ratio to GDP rose marginally to 21.6 per cent at the end-September 2020 from 20.6 per cent at end-March 2020. However, the ratio of foreign exchange reserves to total and short-term debt (original and residual) improved because of the sizable accretion in reserves.

India remained a preferred investment destination in FY 2020-21 with FDI pouring in amidst global asset shifts towards equities and prospects of quicker recovery in emerging economies. Net Foreign Portfolio Investment (FPI) inflows recorded an all-time monthly high of US$ 9.8 billion in November 2020, as investors’ risk appetite returned, with a renewed search for yield, and US dollar weakened amid global monetary easing and fiscal stimulus packages. India was the only country among emerging markets to receive equity FII inflows in 2020.

Buoyant Sensex and NIFTY resulted in India’s market-capitalisation to Gross Domestic Product (GDP) ratio crossing 100 per cent for the first time since October 2010. This, however, raises concerns on the disconnect between the financial markets and real sector.

Exports are expected to decline by 5.8 per cent and imports by 11.3 per cent in the second half of the year. India is expected to have a Current Account Surplus of 2 per cent of GDP in FY21, a historic high after 17 years.