🔍 Pre-Budget Round Up: Understanding the Economic Survey
Before the budget hogs all the limelight and headlines, lets take a look at what the country has achieved so far in terms of the economy.
Before we begin with the Economic Survey, let us invite you to decode the Union Budget LIVE with us today at 11 AM!
We’re sure everyone is excited about today’s budget session. After all, the policies that are formulated today will determine the economical future of the country, and in turn our financial condition, for the next year.
But the budget is the “syllabus” for the upcoming year. And before we look at the syllabus we need to look at last year’s results. This is why the country publishes the Annual Economic Survey a day before the budget session to bring us up to speed. So, let’s take a look at what the Economic Survey highlighted this year.
GDP Growth
One of the most important insights that the Economic Survey gives us is the GDP growth for the upcoming year. And it has projected that the GDP for FY23 will be 8%-8.5%.
This is lower than the 9.2% GDP projection for the current financial year.
The possible reasons for this slow down are the current Covid wave which has already impacted the manufacturing sector, and speculations that the RBI will soon raise interest rates.
Sector-wise Report Card
Covid has majorly impacted the economy and impacted all sectors.
However, the agricultural sector was the least impacted and is expected to grow 3.9% in FY22.
The industrial sector, which declined by 7% last year, is also recovering, it is expected to grow 11.8% in FY22.
The services sector was the most impacted by the pandemic (contracted by 8.4%) is now expected to grow by 8.2% this year.
This highlights that India’s economic outlook is improving.
Fiscal Deficit
The government's fiscal deficit (expenses-revenues) increased to 46.2% of Budgeted Estimates during April-November 21, thanks to the government's fiscal response to Covid.
But it is still below previous years' levels.
Plus, the government's revenue has gone up by 67.2% YOY during the period.
So, maybe we can afford to increase our expenses?
Yes, the government's expenditure is expected to rise by 7.6%, surpassing pre-pandemic levels.
Imports and Exports
India has witnessed a strong growth in exports in the April-November quarter despite supply chain issues and traditional trade costs rising.
So far, India has exported goods worth above $30 billion, which has helped bring down the fiscal deficit.
And exports are further set to grow over 16.5% in 2021-22, exceeding pre-pandemic levels.
However, imports are also expected to grow by 29.4%, which leads us to our next topic.
What measures will the government take to increase imports?
Inflation Worries
Low-interest rates have fuelled inflation throughout the world, and the economic survey has raised alarms against this.
India's Consumer Price Index inflation is around 5.6%, which is still tolerable.
However, the Wholesale Price Index inflation in the "fuel and power" category is 20%!
This could increase the price of crude oil for us.
So, how will the government tame this?
Economic Aspirations
A few years back India had announced the goal of becoming a $5 trillion economy by 2025.
The Economic Survey revealed that to achieve this we'll have to spend $1.4 trillion on infrastructure by then.
The problem is India spent only $1.1 trillion on infrastructure in 10 years from 2008-17.
But with the launch of the National Infrastructure Pipeline, the goal could be achieved.
And the government also wants to increase capital expenditure for the Indian Railways. Expenditure has been substantially increased from an average annual of Rs. 45,980 crores during 2009-14 to Rs. 155,181 crores in 2020-21 and it has been budgeted to further increase to Rs. 215,058 crores in 2021-22.
Plus, the Gross Fixed Capital Formation, an indicator of the amount of private and public investment in infrastructure, is set to grow by 15% in 2021-22.
This is expected to increase the investment to GDP ratio to 29.6%, the highest in 7 years.
Will the Budget feature more measures to increase investment?
These are some of the questions we are hoping to get the answers to today.
P.S. You can read the entire Economic Survey here.
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In my view, this time the union government has presented a very prudent yet visionary budget to meet the goal of $5 trillion economy by 2025. Government's sole emphasis on Investment, Boosting domestic manufacturing, Increasing Exports and Infrastructure clearly indicates the government's willingness towards making India a self-reliant and fearless superpower.
Although, one cannot ignore the obstacles that might come in our way.
Budget 2022 was devoid of consumption boosting measures and many people were expecting tax exemptions to boost direct demand in the economy. If the cyclical nature of pandemic continues to persist, then it might pave way for economic tailwinds.