Economic Survey Highlights

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10 point Economic survey of 2020| What is the estimated GDP growth outlook for India? Check out the blog to find out.

Key Highlights from Economic Survey


Here is a quick highlight of how the various important key economic parameters have fared over the past months and what to look forward in the coming months. Let us take a look at 10 parameter Economic survey of 2020.

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Economic Survey Highlights

1. GDP Growth Outlook

The IMF, in its latest World Economic Outlook update predicted that India’s Gross Domestic Product (GDP) will grow at 11.5% in 2021. These projections exhibit that the Indian economy is expected to grow relatively better than China (predicted growth – 8.1%) and United States (predicted growth – 5.1%).

India is witnessing a sharp V shaped recovery due to strong rebound in High Frequency Indicators in Q3 FY21 and is back on track to achieve $5 trillion economy target. As per IMF, India is expected to emerge as the fastest growing economy in next 2 years

Past and future growth estimates of GDP in India
GDP Growth Outlook

2. Gross Tax Revenue

Gross Tax Revenue had to bear the brunt, taking a big hit due to standstill economic activities leading to economy contraction in H1 FY21. It has declined on a Year on Year basis by 12.6%. The Union Government in the recent budget has projected a 16.67% growth in gross tax revenue in FY22 at over Rs 22.17 lakh crore. The revised estimates of gross tax revenue for the current fiscal has been pegged at Rs 19 lakh crore, lower than the Rs 24.23 lakh crore budgeted earlier.

In FY22, while the corporate tax collection is expected to grow 22.65% at Rs 5.47 lakh crore , personal income tax is estimated to grow 22% to Rs 5.61 lakh crore.

3. Divestment Target Falling Short

The central government had set an ambitious divestment target of Rs. 2.1 Lakh Crore for FY21. However, that didn’t work out as planned and the revenue earned through the divestment route up to 20th January 2021 stands at Rs. 15,220 Crore . This is only 7.2% of the targeted amount. This was achieved by selling stake in IRCTC and Hindustan Aeronautics Ltd.

We must remain optimistic as the recent budget announcements have confirmed that the much awaited LIC IPO will be launched in FY22. BPCL, Air India, Shipping Corp, Container Corp and other divestment will also be completed in 2021-22.  The FM also announced strategic divestment in two public sector companies , 2 PSU banks and one general insurance company in FY22. Union Government will also put disinvestment receipts at ₹1.75 lakh crore for fiscal year beginning April 1, 2021.

4. Rise in Deficit

Fiscal Deficit is the difference between the total income of the government total income and expenditure. Fiscal Deficit is funded through the government borrowing by issuing bonds.

The fiscal deficit was budgeted at 3.5% of FY21 GDP. However, it has blown out of proportion due to the pandemic and currently stands at 7% of FY21 GDP.

In the recent budget the central government has projected a fiscal deficit of 6.8 % of Gross Domestic Product (GDP) for financial year 2021-22, along with setting a glide path to reduce it to 4.5% by financial year 2025-26. This marks a sharp departure from the earlier fiscal deficit projection of 3.3 per cent of GDP for 2021-22. Fiscal deficit for 2020-21, earlier estimated to be 3.5% of GDP, has now been sharply revised upwards to 9.5% of the GDP.

Finance Minister Nirmala Sitharaman, in her Budget speech said –“We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. We hope to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and, secondly, by increased receipts from monetization of assets, including Public Sector Enterprises and land.”

5. Gross NPAs of banks set to increase

The RBI in its recent report said that the bad loan ratio of banks in India could rise by 6% to 13.5% under the baseline stress scenario. It can also double to 14.8% by September 2021, under a severe stress scenario.

The gross bad loan ratio of banks stood at 7.5% as on 30 September 2020.

As per the Honorable Supreme Court’s order, the banks and other lenders have been asked not classify certain accounts as NPAs. Hence, a clear picture of the true state of NPAs in the banks and financial to a certain extent still remains an enigma. We will only get to know once this Pandora ’s Box opens up.

However, one must keep in mind that these projections by the RBI are possible under high stress and adverse situations. The major lending institutions are putting in their best effort by aggregating sufficient capital cushions and creating provisions. Thus, taking a conservative stance if the above becomes a true prophecy.

Gross NPAs of Bank to double by Sept'21 as per FSR
Gross NPA outlook

Finance Minister Nirmala Sitharaman recently announced that the government will set up an asset reconstruction company (ARC)/ Bad Bank and an asset management company (AMC) to house stressed assets currently in book of Indian banks.

What is a Bad Bank you ask?

A bad bank is a corporate structure set up to buy the bad loans of another bank or financial institution with significant non-performing assets, usually at the market price. The government will also infuse ₹20,000 crore into public sector banks as part of its recapitalization plan. More details on the bad bank will follow soon. A bad bank will help in reducing the bad loan burden by taking over NPAs and other stressed assets.

6. Expecting strong V-shaped recovery in H2FY21

V-shaped recovery
Strong V shaped recovery expected in H1FY21

7. Sector-wise recovery H1FY21 vs H2FY21

Sector wise V shaped recovery
V-shaped recovery in key sectors

8. Recovery in GST Collections in H2FY21

GST Revenue collection in Jan’21 hit an all time high of Rs 1.2 lakh crore on the back of stellar economic recovery. The collections were 8% higher than Dec’20 and these collections have been above the Rs 1 lakh crore mark 4 months in a row. GST revenue during October-January has grown on an average of 8%, as compared to -24% during H1FY21.

Also the manufacturing Purchasing Managers’ Index (PMI) soared from 56.4 in December to 57.7 in January. This is the strongest improvement seen by the sector in the last three months. Thus, indicating a sixth consecutive improvement in business conditions.

GST collections in 2020
Recovery in GST collections
Trends in GST collections in FY20 and FY21
GST collection in FY20 and FY21

9. Bank’s Credit Growth

Since September 2019, bank credit growth has been in single digits which represent a genuine reason to worry. It also exhibits a key reason as to why the banks continue to remain undercapitalized.

However growth in bank credit is slowly picking up bank credit growth has grown by 6.7% YoY. This is the highest credit growth in at least three quarters. In the comparable period of previous year, the credit growth was 7.5%. This growth could be due to a surge in demand for mortgage credit, festive season and pent up demand.

Credit growth of banks
Bank credit growth

10. FY21 – A year of high inflation

Inflation has been on a roller coaster ride over 2020. The high demand for essential products and other things as well took the CPI to a high of 7.61%. During April to December food inflation also skyrocketed to stratospheric levels of 9.1%.

However, the Consumer Price Index (CPI) has declined to 4.59%in December. This is the lowest inflation rate since March 2020 at 5.84%. Thus, marking a return to the comfort range of 2-6% prescribed by the Reserve Bank of India. This exhibits that we are entering a state of normalcy and on track to make strong headway in upcoming months.

CPI Inflation in 2020
Inflation in 2020

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