Rising exports, the overall recovery trend across all sectors of the economy and the fiscal space for spending more on infrastructure can make the economy run faster.
This is the second straight year the entire world has been passing through a pandemic. India’s position has been better than many large economies. With considerable difficulties and with timely policy support, the government could stabilize the economy. Though growth in the current financial year at an impressive rate may be because of the low base after the contraction last year, the overall performance has given fresh hope and sigh of relief to many industries.
The Indian economy has reached the pre-pandemic level, the Economic Survey 2021-22 tabled in the Parliament points out. The advance estimates suggest that the Indian economy will grow at 8-8.5 per cent in the financial year 2022-23 after the current year’s expected growth of 9.2 per cent. “This shows that overall economic activity has recovered past the pre-pandemic levels. Almost all indicators show that the economic impact of the “second wave” in Q1 was much smaller than that experienced during the full lockdown phase in 2020-21 even though the health impact was more severe,” the Survey points out.
The government’s fiscal support to the economy as well as to the health response caused the fiscal deficit and government debt to rise in 2020-21. However, a strong rebound in government revenues in 2021-22 has meant that the Government will comfortably meet its targets for the year while maintaining the support, and ramping up capital expenditure. The strong revival in revenue receipts, up over 67 per cent year-on-year in April-November 2021 means that the government has fiscal space to provide additional support if necessary. India needs spending of $ 1.4 trillion to reach the GDP target of a $5 trillion economy. The rapid export growth that India is currently seeing and the comfortable fiscal space that the country has for ramping up capital expenditure can support economic growth in the coming financial year, the Survey indicates.
Despite all the disruptions caused by the global pandemic, India’s balance of payments remained in surplus throughout the last two years. This allowed the Reserve Bank of India to keep accumulating foreign exchange reserves, which stood at $ 634 billion on 31st December 2021. This is equivalent to 13.2 months of merchandise imports and is higher than the country’s external debt. The combination of high foreign exchange reserves, sustained foreign direct investment, and rising export earnings will provide an adequate buffer against possible global liquidity tapering in 2022-23, the Survey points out.