Economic Survey 2021 LIVE News: India GDP growth pegged at 10-12% for FY22

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The new laws will herald a new era of market freedom, the Survey has said. The new farm laws are designed and intended primarily to benefit small and marginal farmers who constitute 85% of total farmers.

The laws will empower farmers in their engagement with processors, wholesalers, aggregators, large retailers and provide level-playing field.
Will transfer risk of market unpredictability from farmer to the sponsor and enable access to modern technology.
Farmers will have full power in the contract to fix a sale price of their choice for the produce and receive payments within a maximum of 3 days.
10,000 farmer producer organisations will be formed through the country which will bring together small farmers.
After signing contracts, farmers won’t have to seek out traders.

India lags behind other large economies

India is currently the fifth largest economy in terms of GDP current US$ while it is the third largest in terms of GDP PPP current international $. Although India has performed above expectation on innovation w.r.t. its level of development, India lags behind most other large economies (top ten in terms of GDP current US$) on most indicators of innovation.

Reliance on “Jugaad innovation” risks missing the crucial opportunity to innovate our way into the future.

India must significantly ramp up investment in R&D if it is to achieve its aspiration to emerge as the third largest economy in terms of GDP current US$.

The way forward

To enable policymaking that involves an exercise of judgement amidst uncertainty, ex-post inquests must recognise the role of hindsight bias and not make the mistake of equating unfavorable outcomes to either bad judgement, or worse, malafide intent.
Given the problem of asymmetric information between the regulator and the banks, which gets accentuated during the forbearance regime, an Asset Quality Review exercise must be conducted immediately after the forbearance is withdrawn.
The legal infrastructure for the recovery of loans needs to be strengthened de facto.

Forbearance represents emergency medicine that should be discontinued at the first opportunity when the economy exhibits recovery, not a staple diet that gets continued for years.

– Economic Survey 2020

Lesson from the Great Financial Crisis of ’08? Don’t get used to regulatory forbearance

Even though forbearance helped borrowers’ tide over temporary hardship caused due to the crisis and helped prevent a large contagion, it comes with serious risks, the Survey highlights.

Continued forbearance after the economic recovery, resulted in unintended and detrimental consequences for banks, firms, and the economy.
Given relaxed provisioning requirements, banks exploited the forbearance window to restructure loans even for unviable entities, thereby windowdressing their books.
As a result of the distorted incentives, banks misallocated credit, thereby damaging the quality of investment in the economy.