ECONOMIC SURVEY 2020-21 (5 QUESTIONS)

Current Account Surplus in FY 2021

India is expected to witness a Current Account Surplus during the current financial year after a gap of 17 years.

Current account surplus refers to positive current account balance, meaning that a country has more exports than imports of goods and services.

While a current account surplus is welcome, it is important to understand how the surplus has been achieved.

If a current account surplus occurs partly due to an increase in exports, it leads to a stronger economy and an increase in consumer spending.

On the other hand, it could also be a result of weak domestic demand. This could result in lower consumer spending and decrease in imports. Meaning, exports did not rise, but imports fell. Hence, analysts in some quarters feel that a surplus may indicate a weak economic growth in the country.

The recent current account surplus for three straight quarters has largely been caused by a decline in the country's trade deficit, caused by the COVID-19 pandemic, and by a drop in economic activity.

As the domestic recovery strengthens, the current account surplus is expected to decline substantially.

Who prepares the Economic Survey ?

The Economic Survey of India is an annual document presented by the government mainly to review the state of the economy in the previous one year, while throwing light on its short-to-medium term prospects.

The Economic Survey is prepared by the Economic Division of the Department of Economic Affairs in the Union finance ministry under the overall guidance of the Chief Economic Advisor.

The final version of the document is scrutinized by the Finance Secretary and then finally approved by the Finance Minister.

It is tabled by the Finance Minister in the Budget Session of Parliament.

What is India's current sovereign credit rating? Ans: BBB-

BBB- is a credit rating used by the S&P and Fitch credit agencies for long-term bonds and investments. It is equivalent to the Baa3 rating used by Moody's.

BBB- is at the very bottom of investment-grade bond ratings and is only one grade above a junk bond rating.

Risk-averse investors therefore exercise caution on BBB- investments, especially if the rating is recently downgraded.

Economic Survey says, "While sovereign credit ratings do not reflect the Indian economy’s fundamentals, noisy, opaque and biased credit ratings damage FPI flows."

"Sovereign credit ratings methodology must be amended to reflect economies’ ability and willingness to pay their debt obligations by becoming more transparent and less subjectivity."

It further says that India has zero sovereign default history.

Projected GDP growth in FY 2022

India’s real GDP is projected to record a growth of 11% in 2021-22, while nominal GDP (excluding inflation) may expand 15.4% after the 7.7% pandemic-driven contraction in 2020-21.

This will be due to the continued normalisation in economic activities as the rollout of vaccines gathers traction.

This will further be supported by supply-side push from reforms and easing of regulations, push to infrastructural investments, boost to manufacturing sector through the Productivity Linked Incentive schemes, recovery of pent-up demand for services sector, increase in discretionary consumption subsequent to roll-out of the vaccine and pick-up in credit, given adequate liquidity and low interest rates.

This path would entail a growth in real GDP by 2.4% over the absolute level of 2019-20 — implying that the economy would take two years to reach and go past the pre-pandemic level.

These projections are in line with IMF estimate of real GDP growth of 11.5% in 2021-22 for India and 6.8% in 2022-23.

India is expected to emerge as the fastest growing economy in the next two years as per IMF.

V-shaped Economic Recovery

Economic Survey projects a V-shaped economic recovery for India.

While the lockdown resulted in a 23.9% contraction in GDP in Q1, the recovery has been a V-shaped one as seen in the 7.5% decline in Q2 and the recovery across all key economic indicators.

V-shaped Economic Recovery

Economic Survey projects a V-shaped economic recovery for India.

While the lockdown resulted in a 23.9% contraction in GDP in Q1, the recovery has been a V-shaped one as seen in the 7.5% decline in Q2 and the recovery across all key economic indicators.