Economic Survey: Infuses optimism for what lies ahead; expect Budget to announce reforms to boost consumer spending

The Economic Survey has noted that a distinguishing feature of India’s economic response has been an emphasis on supply-side reforms rather than a total reliance on demand management.

These supply-side reforms include deregulation of numerous sectors, simplification of processes, removal of legacy issues like ‘retrospective tax’, privatisation, production-linked incentives.

Experts weigh in

Ramesh Nair, CEO, India & Managing Director, Market Development, Asia, Colliers

The 2022 Economic Survey infuses optimism for what lies ahead. The projection of 8-8.5 percent GDP growth for fiscal 2022-23 will be led by supply-side reforms and easing of regulations. The survey also indicates that consumption is growing and inching closer to the pre-pandemic levels. Total consumption is estimated to have grown by 7.0 per cent in 2021-22 with a significant boost from government spending. The Survey spells out that rising capital expenditure by the government on infrastructure and an uptick in the housing cycle has been responsible for reviving the construction sector. This has resulted in the consumption and production of steel and cement consumption to reach pre-COVID levels. We expect Budget 2022-2023 to announce reforms and incentives that will continue to boost consumer spending and thus aid in the overall revival of the real estate sector.

Aditi Nayar, Chief Economist, ICRA

The range of 8.0-8.5 percent growth for FY2023 assumed by the Economic Survey appears to have built-in a cushion for any disruption caused by future waves of COVID, in our view, even as preparedness of economic agents has improved amidst the insurance offered by the bouquet of social safety nets. The continued thrust to government capex portended by the Economic Survey is enthusing, as it offers the best likelihood of instigating a durable growth recovery. This is in line with our own view that the upcoming Budget must fully allocate the amount of capital spending that can realistically be absorbed in FY2023.

With the Economic Survey corroborating that spending will be back-ended in FY 2022, we maintain our forecast of a modest fiscal slippage driven by the missed disinvestment target.

Following the conversion/switch of G-sec with the RBI, we now peg the gross dated borrowing of the GoI at Rs. 12.3 trillion in FY2023. Our baseline assumption is that GDP growth will remain steady at 8.9 percent in FY2022 and 9.0 percent in FY2023. With the rebound in commodity prices leading us to revise up our WPI inflation forecast for FY2023 (to 4.0 percent from 2.0 percent), and creating an upside to our projection of a 5.0 percent CPI inflation for FY2023, we now place nominal GDP growth for the coming year at 13.5 percent. The stickiness in the CPI inflation suggests that its only a matter of time before the MPC commences on policy normalisation, with a change in stance to neutral in April 2022.

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