The situation of India and the world have been exceptional aroundthis time of the year in 2021. The Corona Virus pandemic, aptly titled ‘TheInequality Virus’ in a report has devastated most individuals and industries.
In the light of the same, let us go though the EconomicSurvey of 2021.
Fiscal Deficit
Fiscal Deficit is the spending of the money that has notbeen earned yet. The concept is same whether you are taking loan on your creditcard, a bike on EMI, or the government spending on projects.
The effect of fiscal spending is that it weakens thecurrency and guarantees the future generations’ servitude in the form of taxes.
However, expenses also need to be made to grow and the sameis apparent in the fundamental analysis of companies when looking at theirfinancial health for investment.
Now, the Indian government may be able to sustain itselfwith a higher fiscal deficit to push growth. The economic survey indicates thatthe growth if realised will lead to debt sustainability.
The various sectors of any economy rise and fall in cycles.For our Indian context, the survey illuminates a need for countercyclicalspending. In other words, those sectors that are down may be better able topush India’s growth if money is pumped into those sectors.
India’s Sovereign Credit Rating (SCR)
India as a nation had its credit rating negatively affected.The survey however purports that the rating is an incorrect picture of thenation’s ability to pay back on its obligations.
What ends up happening due to poor ratings, understandably,is a reduction in the inflow of capital from foreign investors.
The survey also highlighted the strength in the fundamentalsof India’s economy.
Growth and inequality
This issue, as relevant as ancient it is, sees an argument inthe Economic Survey that India’s scenario is different from the advanced economiesof the world.
For India, the Survey claims, the indicators ofsocio-economic status see a convergence in economic growth and inequality.Redistribution of wealth will be possible when the economy of India grows.
Regulatory framework
Discretion was called for in the Economic Survey, whichcited economics theory and real-world case studies to show that in the complexworld, it is not possible to account for every possible outcome.
And over-regulation is a tendency when the authoritiesbelieve, falsely as per the Survey, that they can foresee every outcome.
Thus, the Survey encourages discretion in the face of thecomplexity and in addition, greater supervision.
Innovation
Research and Development (R&D) and the need to innovatewas identified, for the first time by the annual Survey, to be an important requirement.
The Survey encouraged the nation to compete on innovationwith the top 10 economies of the world.
Current situation
The Survey sees the growth of the Indian economy at 11percent next year and coupled with the inflation’s expectation of 4.4 percent,a nominal growth of 15.4 percent is anticipated. The same would be the fastestin the last several years.
Also, financial slippage is expected from both the centraland the state governments, not surprisingly, die to shortfall in revenue andhigher expenditure due to COVID-19.
The longer-term sustainability, however, depends on revivinggrowth relative to the interest cost of government debt.