Economic survey highlights and Budget 20-21 expectations

Economic survey highlights and Budget 20-21 expectations

Last updated: 30 Jan, 2021 | 06:33 am

Economic survey highlights and Budget 20-21 expectations

Ahead of Union Budget 2021-22, Finance Minister Nirmala Sitharaman has tabled the Economic Survey in the Parliament on the first day of the Budget session. Economic Survey is an annual document of the finance ministry. 

It reviews the economic development in India over the past financial year by giving detailed statistical data of industrial, agricultural, manufacturing sectors, among others. Besides, it analyses the whole macroeconomics of the country in the past year and provides an outline for the next financial year. Here are some key highlights from Economic Survey 2021, and expectations from Budget 2021.

V-shaped economic recovery

Despite the hard-hitting economic shock created by the global pandemic, India is witnessing a V-shaped recovery with a stable macroeconomic situation aided by a stable currency, comfortable current account, burgeoning forex reserves, and encouraging signs in the manufacturing sector output. 

Advices government to keep up fiscal support through spending

The Survey has called for a continued expansionary fiscal stance by the government to ensure that growth returns to pre-Covid levels. Only an active fiscal policy that recognises that the risks from doing too little are much more than the risks from doing too much can ensure that this “economic bridge” is well laid out, said the survey. A recovery in growth will boost revenue collections and help India get back on a sustainable fiscal path.

The survey has addressed the concerns of rising debt saying that a higher GDP growth rate would keep the Debt/ GDP ratio in check. If we fail to stimulate the economy, we risk the temporary weakness in demand leading to lower potential growth in the future.  

India’s poor Sovereign rating does not reflect its fundamentals

The survey has noted that its current sovereign rating does show the true picture. On various parameters such as GDP growth rate, inflation, general government debt (as per cent of GDP), current account balance (as per cent of GDP), political stability, rule of law, and ease of doing business the country has been rated lower than it deserves, according to the survey. Global credit rating agencies Moody’s, S&P and Fitch downgraded India’s Sovereign rating/ outlook earlier this year.

GDP growth pegged at 11% in FY22

After an estimated 7.7% contraction in 2020-21, the Economic Survey projects that India’s real GDP would record a growth of 11% in Apr 21- Mar 22 period.  This reflects upside potential that can manifest due to the continued normalisation in economic activities as the rollout of Covid-19 vaccines gathers traction.

Interestingly, while the GDP growth estimates look rosy, the economy will take two years to reach and go past the pre-pandemic level in absolute GDP of 2019-20, if this high growth materialises. This is because of a low base in FY21 (after the contraction). Earlier, the IMF had estimated a GDP growth rate of 11.5% in FY22.

Banks need another asset quality review

The Economic Survey 2021 has suggested a fresh asset quality review of banks after the Covid-19-related regulatory forbearances are removed. The regulatory forbearance must be removed as the economy improves and must quickly be followed up by a clean-up exercise of bank books, the survey said.

According to ICRA, Gross non-performing assets (NPAs) of banks are likely to worsen to 11.3-11.6% by the end of this financial year from 8.6% as of March 2020, due to disruptions caused by the coronavirus pandemic. During the previous NPA cycle, GNPA% peaked at 11.2% in FY18.

Focus on Healthcare

The survey has recommended setting up a sectoral regulator, and a rating agency like body, to assess the quality of healthcare providers in the country. This, the survey said, will help tackle information asymmetries. There is a need for higher public spending, while healthcare infrastructure stays agile the survey suggests. The spending should be increased from 2.5% to 3% on GDP.


Overall, the Economic Survey shows an optimistic picture of the economy.  It has called for the continuation of fiscal support from the government. The resultant recovery from the support is expected to translate to healthy tax collections and ensure a sustainable fiscal path over the next few years. Foreign exchange surplus gives some room for enhanced domestic investments. However, higher spending could translate to a larger fiscal deficit in FY22 (though smaller than FY21). This could put pressure on interest rates and inflation later. The government has the difficult task of balancing the objectives of growth and inflation.