Economic Survey 2021 - 2022 [^4] [^5]
Economic Survey 2021 - 2022 1 2
Section titled “Economic Survey 2021 - 2022 1 2”Created : 2021-07-23 10:30
COVID Response
Section titled “COVID Response”- pandemic -> lockdown -> temporary shut down of economy -> global recession
- Lockdown was trade off b/w life and livelihood was used to scale up medical infra.
- higher initial stringency of LDs in states had significant impact in controlling spread.
- LD led to supply shock first then Demand shock.
- IN experienced V shaped recovery after easing of LD
- Measures adopted by Gov : PM Garib Kalyan Yojana to ensure food security; DBT to widows, pensioners, women; additional funds for MGNREGA; debt moratoria and liquidity support for business; Atmanirbhar 2.0 and 3.0 stimulus.
- Measured led to : Inc in Avg balance in PM Jan Dhan accounts then dec showing increasing expenditure;
- Structural reforms undertaken on the supply side to dec long term effect of pandemic : Farmers Ordinances; New MSME definitions; New Labour Codes; Tariff policy reforms on DISCOM; PLI scheme; Corporatization of OFB, FDI limit on Defence mfg inc from 49 to 74%; Decriminalisation of Companies act; lower penalties on default.
Growth and Debt Sustainability relation
Section titled “Growth and Debt Sustainability relation”- Counter Cyclical fiscal policy is steps taken by govt that go against the direction of economic of business cycle. Done to inc liquidity situation of households to inc consumption, inc market liquidity making credit cheaper, private savings increases. Also enhaces consumer sentiment since future productivity would inc and builds confidence in stability of economy.
- Fiscal Multipliers measure effect that inc in spening will have on economic output or GDP. It is ratio of change in output ▲Y to change in tax revenue ▲T or govt spending ▲G.
- Increasing growth rate dec debt-to-GDP which inc debt sustainablity but vice versa was not seen.
- Higher govt spending may inc debt levels for medium term but long term as growth picks up there will be decline
- Crowding out of private investment due to large govt spending is not seen in the case of India post liberalisation
- Wealth Effect : people tend to spend more as their value of asset inc
- Rollover risk : associated w/ refinancing of debt, when loan or debt obligation like bond is about to mature and needs to be converted/rolled over into new debt.
- Ricardian Equivalence Proporsition : says that debt-financed govt spending will not be effective since investors know that current spending will have to be financed w/ inc taxes in future so they will save money
Effect of Sovereign Credit Ratings on Economies
Section titled “Effect of Sovereign Credit Ratings on Economies”- There is systematic under-assessment of Indias fundamentals in sovereign credit ratings done by agencies.
- Sovereign ratings are given to show their ability to meet debt obligations -> influence global capital market and foreign investment.
- Effects of Rating downgrade : does not correlation w/ Sensex; G-Secs yields also do not dec; FPI decreases in long term; Commercial banks find difficult to issue internationlly recognised letters of credit; can create fin market instability in emerging economies.
- Effects of Raing Upgrade : long term positive correlation w/ Sensex; FPI increases
- Policy suggestions : Policy should be guided by considerations of growth and dev and not by ratings; Developing countries should come together to counter this bias; adverse impact of credit ratings on economies be addressed; Rating agencies be forced to inc transparency.
Correlation b/w Growth and Inequality
Section titled “Correlation b/w Growth and Inequality”- Perfect outcome equality may not be desirous since it psychologically reduce the incentive to work.
- Rawls theory of Justice deals w/ problem of distributive justice in society. Equal distribution of resources should be desirable state of nature not utilitarian philosophy of greater good to greater no of people. Based on 2 principles of Justice ie Equal Liberty and Equality. Every individual has an equal right to basic liberties and they should have right opportunities and equal chance as others or have similar abilities.
- Absolute poverty should be of greater concern than inequality.
- States w/ greater income had low rates of poverty but no such correlation was found b/w inequality and poverty.
- Growth of consumption in India led to more people getting out of poverty than redistribution.
HealthCare in India
Section titled “HealthCare in India”- Suggestions on Healthcare : Healthcare infra must be agile not salient; Telemedicine needs to be harnessed ex ESanjeevani OPD; emphasis on National Health Mission NHM must continue; Inc in public expenditure fro 2.5% to 3% of GDP -> dec out of pocket expenditure; need policies to mitigate information assymetry in healthcare.
- HC does not self organise using force of free market.
- Non Communicable Diseases contribute 65% of all deaths in India.
- Positive correlation w/ total no of cases and deaths and higher health infra -> better infra no guarantee to deal w/ pandemic
- Problems w/ Indian HC : Poor health outcomes; Low access and Utilisation since hospitalisation rates are low; High OOP expenditure; Low budget allocation for healthcare even for richer states; Low Human resource
- Private sector is unregulated and needs supervision
Over Regulation in India
Section titled “Over Regulation in India”- Problems with Regulation :
- Effectiveness is less due to lack of quality and effective enforcement of regulation;
- incomplete regulation -> excessive and opaque discretion by supervision authority
- Regulatory default due to wastage of resource, adding of more regulations over time -> leads to default by govt dept
- Solution : Accountability before the event; Bringing transparency in decision making process; Resilient ex-post resolution mechanism for dispute resolution and contract enforecement; Reducing complexity; enact Transparency of Rules Act.
- Initiatives taken by the Gov : GeM portal; Closure of various Handloom boars, Handicraft boards etc; Merger of 4 fil media units into 1; IBC as ex-post resolution mechanism; Merger of labour laws, liberalising regulation for BPO sector.
- Regulatory forbearance is regulatory policy that permites banks and financial institutions to continue operating even when their capital is fully depleted.
- Problems w/ it : Undercapitalisation of banks; leads to Zombie firms; Evergreening of loans; weakens croporate governance
Innovation
Section titled “Innovation”- Why?
- Increaes productivity of workers; large returns by smaller companies; positive correlation w/ GDP per capita