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The Indian economy will take at least two more years to return to the growth levels achieved in the pre-pandemic period, the 2020-21 Economic Survey said.

The document, which was tabled by Finance Minister Nirmala Sitharaman in the Lok Sabha today, states that the rebound will be led by the low base and continued normalization in economic activities as the rollout of COVID-19 vaccines gathers traction. 

“The fundamentals of the economy remain strong as gradual scaling back of lockdowns along with the astute support of Atmanirbhar Bharat Mission have placed the economy firmly on the path of revival. 

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

These projections are in line with the IMF estimate of real GDP growth of 11.5 percent in 2021-22 for India and 6.8 percent in 2022-23 and India is expected to emerge as the fastest growing economy in the next two years as per IMF, it added.

The Survey said India’s GDP is estimated to contract by 7.7 percent in FY2020-21, composed of a sharp 15.7 percent decline in the first half and a modest 0.1 percent fall in the second half.

Sector-wise, agriculture has remained the silver lining while contact-based services, manufacturing, construction were hit hardest, and have been recovering steadily, it said.

Government consumption and net exports have cushioned the growth from diving further down, it added.

As anticipated, while the lockdown resulted in a 23.9 percent contraction in GDP in Q1, the recovery has been a V-shaped one as seen in the 7.5 percent decline in Q2 and the recovery across all key economic indicators. the Survey said.

Starting July, a resilient V-shaped recovery is underway, as demonstrated by the recovery in GDP growth in Q2 after the sharp decline in Q1, it said.

As India’s mobility and pandemic trends aligned and improved concomitantly, indicators like E-way bills, rail freight, GST collections, and power consumption not only reached pre-pandemic levels but also surpassed previous year levels, the Survey said.

The reignited inter and intrastate movement and record-high monthly GST collections have marked the unlocking of industrial and commercial activity it said adding, “A sharp rise in commercial paper issuances, easing yields, and sturdy credit growth to MSMEs portend revamped credit flows for enterprises to survive and grow.”

Dwelling on the sectoral trends, the Survey said that the year also saw the manufacturing sector’s resilience, rural demand cushioning overall economic activity and structural consumption shifts in booming digital transactions. 

It added that Agriculture is set to cushion the shock of the COVID-19 pandemic on the Indian economy in 2020-21 with a growth of 3.4 percent in both Q1 and Q2. 

A series of progressive reforms undertaken by the government have contributed to nourishing a vibrant agricultural sector, which remains a silver lining to India’s growth story of FY 2020-21, the Survey said.

A palpable V-shaped recovery in industrial production was observed over the year, it said and added that manufacturing rebounded and industrial value started to normalize. 

Indian services sector sustained its recovery from the pandemic driven declines with PMI Services output and new business rising for the third straight month in December, the Survey said.

Bank credit remained subdued in FY 2020-21 amid risk aversion and muted credit appetite. However, credit growth to agriculture and allied activities accelerated to 7.4 percent in October 2020 from 7.1 percent in October 2019, the Survey said.

October 2020 saw resilient credit flows to sectors such as construction, trade, and hospitality, while bank credit remained muted to the manufacturing sector, it added.

“Credit growth to the services sector accelerated to 9.5 percent in October 2020 from 6.5 percent in October 2019,” it said.

The external sector provided an effective cushion to growth with India recording a current account surplus of 3.1 percent of GDP in the first half of the year, largely supported by strong services exports, and weak demand leading to a sharper contraction in imports (with merchandise imports contracting by 39.7%) than exports (with merchandise exports contracting by 21.2%), the Survey said. 

Consequently, the Foreign exchange reserves rose to cover 18 months of imports in December 2020, it added.

External debt as a ratio to GDP rose marginally to 21.6 percent at the end-September 2020 from 20.6 percent at end-March 2020. However, the ratio of foreign exchange reserves to total and short-term debt (original and residual) improved because of the sizable accretion in reserves, the Survey said.

India remained a preferred investment destination in FY 2020-21 with FDI pouring in amidst global asset shifts towards equities and prospects of quicker recovery in emerging economies, the Survey said. 

Net FPI inflows recorded an all-time monthly high of US$ 9.8 billion in November 2020, as investors’ risk appetite returned, with a renewed search for yield, and the US dollar weakened amid global monetary easing and fiscal stimulus packages, it said.

India was the only country among emerging markets to receive equity FII inflows in 2020, it added.

Buoyant Sensex and NIFTY resulted in India’s market-capitalization to Gross Domestic Product (GDP) ratio crossing 100 percent for the first time since October 2010, the Survey said. 

“This, however, raises concerns on the disconnect between the financial markets and real sector,” it added.

On the supply side, Gross Value Added (GVA) growth is pegged at -7.2 percent in 2020-21 as against 3.9 percent in FY:2019-20, the Survey said.

Agriculture is set to cushion the shock of the Covid-19 pandemic on the Indian economy in 2020-21 with a growth of 3.4 percent, while industry and services are estimated to contract by 9.6 percent and 8.8 percent during the year, it said.

Exports are expected to decline by 5.8 percent and imports by 11.3 percent in the second half of the year. India is expected to have a Current Account Surplus of 2 percent of GDP in FY21, a historic high after 17 years.

Summary of Economic Survey-2020-21

V-Shaped Economic Recovery Due to Mega Vaccination Drive, Robust Recovery in the Services Sector, and Robust Growth in Consumption and Investment

V-Shaped Recovery is Due to Resurgence in High-Frequency Indicators Such as Power Demand, Rail Freight, E-Way Bills, GST Collection, Steel Consumption, Etc

India to Become the Fastest Growing Economy in Next Two Years as Per IMF

India’s GDP is Estimated to Contract by 7.7 percent in FY2020-21

Agriculture to Clock 3.4 Percent Growth, While Industry and Services to Contract by 9.6 Percent and 8.8 Percent Respectively this Year This Year

India to Have a Current Account Surplus of 2 percent of GDP in FY21, A Historic High After 17 Years

Net FPI Inflows Recorded an All-Time Monthly High of 9.8 Billion Dollars in November 2020

Scores of lives saved and V-Shaped Economic Recovery bear Testimony to India’s Boldness in taking Short-Term Pain for Long-Term Gain.

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