The Economic Survey has become an analytically rich document, offering data driven insights into India’s economic, social and behavioral trends. Yet, in the context preceding a “never seen before, one in a 100 year” Budget, the 2021 Economic Survey assumes an inordinate significance.

In an environment where India has already become a major vaccine provider for the world, the broad theme of “Atmanirbhar Bharat” anchoring the Survey chapters, strikes a resonant note.

The analytical chapters present an interleaved mesh of topics which support this broad theme, including ramping up healthcare and Ayushman Bharat, process reforms, innovation, even while cautioning that the emergency monetary policy support, including regulatory forbearance was a lifeline and should be considered as a prolonged easing of prudential regulation.

To begin with is the Survey’s assessment of the ongoing recovery and outlook for FY22 and beyond. FY21’s real GDP growth is retained at the official estimate of 7.7 per cent contraction, and the FY22 rebound is forecast at 11 per cent yoy, and nominal growth at 15.4 per cent(up from minus 4.2 per cent% in FY21).

This is important, since this provides a signal of the real growth rate for the Union Budget. This is in line with the recent IMF update predicting a 11.4 per cent growth for India. However, we think that growth is likely to be higher, which will in turn provide some buffers for the fiscal numbers presented in the Budget Estimate. The survey also notes that the forecasts are conservative, with upside prospects.

Able macro-economic policies have helped economic activity rebound to pre-pandemic levels. On the demand side, recovery is expected to be broad based in H2 FY21. Government consumption is expected to be the biggest growth driver, expected to rise 17 per cent compared to a 3.9 per cent% contraction in H1. Private consumption and investment are also expected to revive strongly.

A look back into the pandemic policy response provides insights into the focus which will be required to plug weaknesses, processes to redistribute incomes, provide social safety nets, policy response coordination, etc.

A graded multi-pronged response included containment measures, calibrated fiscal support focused on essentials during the lockdown phase and a demand push during the reopening, financial measures and structural reforms. In terms of the fiscal space available for continuing stimulus in the FY22 Union Budget, the Survey states that while re-distribution is important, the required scale becomes feasible for a developing economy only when the economic pie is growing.

This is a strong message and a signal that the Budget is likely to be a growth oriented one. Increasing capex is a key concern. Given the current size of India’s foreign exchange reserves (close to $600 billion), there is now a debate whether some part of this might be leveraged to fund infrastructure, or take on some credit risk. The current practice is to deploy these reserves in government bonds and deposits of global central banks.

Although there is no risk of default, yields on these investments are very low, given the zero or negative policy rates. This entails a large negative carry cost for RBI. Deploying some of these reserves in high rated corporate bonds would push up interest earnings, and still remain within the envelope of credit safety. The Survey feels that the current levels can absorb an additional 2.8 standard deviation negative event. In addition, the Survey questions the validity of India’s BBB - sovereign credit rating, and makes a case for upgrades.

The broader issues relate to taking India back up to a sustained high growth trajectoryand further accelerate the deep reforms which have been instituted and are also currently underway. Now that demand and consumption are improving, investment and capital spending will again return to centre stage. The first is strengthening the financial sector.

The Survey notes that the Insolvency and Bankruptcy Code has brought about behavioral changes amongst creditors and borrowers, redefining their relationship. Besides speedy resolution of stressed assets and speedier settlement in default cases, this has also served to incentivise firms to operate at higher efficiencies. Even the NBFC sector has shown significant improvement. Capital adequacy improved to 22 per cent in June 2020 from 20.6 per cent in March. Liquidity conditions for NBFCs have further improved in recent months, and balance sheets of many of the erstwhile stressed entities have been progressively repaired.

The pandemic has sharply accelerated already evolving global trends: technology adoption, digitalisation and automation, formalisation of economic activity in emerging markets, consolidation and increasing scale and market power across sectors, and as a consequence, rising inequality.

One positive impact of the pandemic is precisely the increased use of digital tools in reducing the digital divide between rural and urban, gender, age and income groups. The Survey notes that the number of students in government and private schools owning a smartphone increased from 36.5 per cent in 2018 to 61.8 per cent in 2020 in rural India!

One specific concern regarding rising inequality is the problem of employment opportunities and job creation. In the context of the economic loss and scarring in the informal sector, is the view of India’s potential growth over the medium term. Boosting manufacturing will result in backward linkages to MSMEs, generating significant employment opportunities. Sector specific measures, particularly allied farming activities like fisheries, will also add to employment generation.

As the Vice President noted, “Aatmanirbhar Bharat isn't just confined to manufacturing in India but also a campaign aimed at elevating standard of living of every Indian and boosting self-confidence of country”. Recognising the “hysteresis” effect of the pandemic, significant structural reforms have been initiated, aimed at strengthening the economy. These augment the expansion of public investment, in order to crowd private capex back in, with additional deregulation and liberalisation of sectors to unleash entrepreneurial energy and risk appetite of private investors.

(The writer is Executive Vice President and Chief Economist, Axis Bank. Views are personal.)