IMF Estimates and Economic Survey 2021
Something New
With the release of IMF’s World Economic Outlook and CEA (Chief Economic Advisor) releasing the Economic Survey 2020-21, we got some critical economic data and projections about the Indian Economy. The IMF’s World Economic Outlook report projects that the Indian economy will see a contraction of 8% for 2020-21, and will bounce back with an 11.5% growth rate in 2021-22. IMF’s chief economist Gita Gopinath came in support of the recent ‘controversial’ farm bills and said that, “this had the potential to raise, in our view, farmers’ incomes.” Along with this, she also suggested that India’s growth would depend on the policy taken upon agriculture and infrastructure. The IMF also mentioned that for India to secure a double-digit growth rate, it would need a bold and multifaceted policy response including investment in health infrastructure and effective roll-out and distribution of vaccines in the country.
A few days after the IMF’s World Economic Outlook, the CEA, Krishnamurthy V Subramanian, presented the 900-page, Economic Survey (2020-21).
Here are some of the highlights compiled from the Economic Survey:
The economic survey, similar to the IMF projections, estimates that the Indian economy will grow 11% in 2021-22 while the economy will contract by 7.7% in the current FY.
Agriculture is the only sector to grow this year with a growth rate of 3.4% while, both the manufacturing and service sectors see a contraction of 9.6% and 8.8% respectively.
Indian government missed the divestment target by a huge margin. During the 2020 Budget, FM Nirmala Sitaraman announced that the government had set a target of ₹2.1 lakh crore divestment but due to the pandemic the actual number is close to ₹15,220 crore, 7.2 percent of the targeted amount. (The expectation is that the government will set a similar ambitious divestment target this year as the economy is recovering)
The CEA expects the economy to see a V-shaped recovery.
The economic survey and the CEA, both mention the importance of infrastructure to boost growth.
The survey takes a dig at the sovereign credit ratings and points out that their methodologies are biased and that the ratings often given to India are unfair, calling for more ‘transparent and less subjective’ ratings.
Health and the different aspects of healthcare such as the National Health Mission, Pradhan Mantri Jan Arogya Yojana (PM-JAY) took a big chunk of the Economic Survey. The CEA praised the achievements of PM-JAY, but at the same time calls for more allotment for healthcare.
The CEA highlights the importance of increased spending in times of crisis and how debt sustainability may not lead to growth, but growth will help achieve debt-sustainability.
Mr. Subramanian mentions how “It takes about 1,600 days to close a company in India even if all the papers are fine, the same for Singapore is just 128 days” to point out the over-regulation in India and the need to simplify regulation and bring in key reforms that will help ease-of-doing-business in India.
Economic Survey 2020-21 also took 3 pages to go into the history of Farm Bills and how the bills are not new or sudden but have been a recommendation by many since 2001 (at least), all while strongly defending the bills.
These are some of the highlights from the 900-page document uploaded to the Indian Union Budget website. One of the most important takeaway is that the Indian economy has been so critically hurt by the pandemic, that despite the ambitious 11% growth rate projections by IMF and Economic Survey, the Indian economy will take 2 years to recover to the pre-pandemic level. Tomorrow, the Finance Minister will be announcing the all-important Union Budget 2021. A budget that will be of as much importance as (or more than) the 1991 budget presented by (then) Finance Minister Manmohan Singh.
GAMESTONKS!! - Explainer
Something out of the blue
What a wild week has this been. Investors around the world have been caught off-guard with one of the wildest stories in stock market history. Earlier this week, I had an opportunity to curate an explainer for my college economic society page so, here’s a link to it, check it out!
1 step ahead, 2 steps backward!
Something Old
On 26th January, I saw a tweet from the CEO of NPCI (National Payments Corporation of India) – the organization behind BHIM, RuPay, UPI, and many other important products and services.
He retweeted a tweet from RBI that linked to a document RBI published called ‘Payment and Settlement Systems in India.’ The tweet was praising the progress we as a nation and RBI made in advancing our payment infrastructure with the introduction of products like RuPay, UPI, IMPS, Bharat QR, and others with India entering the phase of digital payments. In 2017-18, UPI accounted for 9% of all retail transactions, but over time with smartphones being more popular, and internet connectivity reaching across India, online payments becoming more acceptable, we saw that by February 2020, UPI’s share for all retail transactions by volume had crossed 50%.
This also saw the rise of FinTech companies in India that have only allowed further innovation in wallets, payment services, accounting and taxation, and even point-of-sale services. Companies like PolicyBazaar, RazorPay, CRED, KhataBook, Groww, and others have eased the user experience of transactions. The strides made by RBI and the intent of the Indian government to adopt technology and digitalization in the last few years is greatly appreciated.
Then came these headlines:
These headlines came after a few people noticed a bill called “The Cryptocurrency and Regulation of Official Digital Currency Bill, 2021” is listed as one of the bills the government plans on introducing in the current Budget Session.
In 2018, under the ministership of Arun Jaitley, the Indian government banned all cryptocurrency and said that the Indian government does not recognize crypto as legal tender, and later that year RBI announced the ban of sale and purchase of cryptocurrency by stating the “economic, financial, operational, legal, consumer protection and security-related risks of virtual currencies such as Bitcoin.” Later in March 2020, the supreme court heard a petition and passed a judgment revoking the ban on cryptocurrency in the country, with crypto being legal ever since.
Now the government may be considering a ban on all cryptocurrencies again. There are countries in the world actively working on regulating cryptocurrencies, here is a map of countries that have a regulatory framework for cryptocurrencies.
But the Indian government somehow still sees crypto as a threat. Here is a Twitter thread by Nischal Shetty, the founder of WazirX, an Indian cryptocurrency trading platform, raising questions about the Indian government and RBI’s (supposed) intent to ban crypto as well as encouraging the government for healthy debate and discussion regarding the future of the same in this country before taking any hasty steps.
The only information available on the bill is this short description from the Lok Sabha Bulletin. So, it will be interesting to see what the government of India proposes in the bill and if they will discuss the same with experts and industry leaders before taking any steps as Nischal Shetty mentions in his tweets. Crypto enthusiasts in the country like myself will be looking at this situation closely. Only time will tell.
Padma Shri, Sridhar Vembu
Something borrowed
On January 25th, the government of India announced the list of winners for the Padma awards, and among the list of achievers, one of the people conferred with the Padma Shri award was Sridhar Vembu. Sridhar Vembu is the founder, CEO of one of India’s technology and software gems – Zoho Corporation.
Zoho Corporation is a private company based in Chennai that provides all kinds of software products and solutions. The company has over 40 different products each competing with different silicon-valley giants such as Microsoft and Google. Zoho, without any external funding or investors, while providing cheap and powerful tools has been able to garner over 50 million users across the world with (estimated) revenue of over $500 million.
Leaving the company aside, Here is a 30-minute interview of Sridhar Vembu that explores all the details about the journey of Mr. Vembu, his brilliance, and Zoho Corp.
Learning about Zoho Corporation, Zoho University, and (Padma Shri) Sridhar Vembu himself over the last week has been a delight. It is people like Mr. Vembu that push India to greatness.
You have reached the end of the third edition of finanomics, thank you for reading. Please do let me know your thoughts, suggestions, feedback, or comments on the newsletter as well as the content in it. Thank you, happy Sunday! See you next week!
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Brilliantly worded edition, very informative!