Economic Survey 2021-22 Offers A New Approach To Policymaking

The key signature of Economic Survey 2021-22 is a thought-provoking intellectual framework of policymaking.

Of course, the Survey, that comes bang in the middle of a leadership change from chief economic adviser Krishnamurthy Venkata Subramanian to V Anantha Nageswaran, and, therefore, anchored by principal economic adviser Sanjeev Sanyal, continues with analyses of the economy and points to the usual projections.

But the weight of this Survey lies in ideas deeper than extant data points can offer and in thought experiments outside traditional boxes.

Using 80 real-time high-frequency indicators such as goods and services tax collections, power consumption, digital payments, satellite photographs, cargo movements, and highway toll collections, for instance, the Survey offers a new approach to policymaking.

From the all-knowing ‘waterfall’ framework that assumed planners knew it all, to an ‘agile’ approach that uses feedback loops and adjusts for quicker changes in data, the Survey argues for a new path to policymaking.

Facing a never-seen-before uncertainty — but which should be seen as the new normal in the twenty-first century — the government “opted for a ‘Barbell Strategy’ that combined a bouquet of safety-nets to cushion the impact on vulnerable sections of society/business, with a flexible policy response based on a Bayesian updating of information.”

The former includes several measures to manage financial stress during the ongoing Made in China pandemic, Covid-19.

Under cash transfers, for instance, the government handed over Rs 500 per month for three months to women Jan Dhan Account holders, Rs 1,000 to vulnerable sections such as widows and the elderly, and Rs 6,000 per annum under the Pradhan Mantri Kisan Samman Nidhi.

Likewise, under food security, employment, housing, skill development, MSMEs (micro, small, and medium enterprises), and credit.

On the other side, the Barbell Strategy delivered fiscal and monetary measures to revive the economy. These included timing it such that it did not press the accelerator and the brake simultaneously. It first used the brakes through lockdowns and then pressed the accelerator through a gradual opening up, as the vaccination drive continued and is today a global benchmark.

This has served India well. While the International Monetary Fund has forecast the Indian economy to grow by 9 per cent in 2021 and 2022, the Economic Survey 2021-22 expects the 2022-23 growth at between 8.0 and 8.5 per cent. This growth rides a high fiscal deficit of 10.2 per cent (an idea that has been discarded globally for the time being), all-time high foreign exchange reserves of US $634 billion, FDI inflows of US $48.4 billion, and 44 unicorns with a combined valuation of more than US$100 billion.

This balance of growth and safety nets has kept the economy going, the result of which is that India is expected to be the fastest-growing economy over the next two years.

All this while reforms have continued. The list of reforms is long — production-linked incentives for 13 sectors, public procurement, drone rules, the disinvestment of Air India, the increase in deposit insurance, national monetisation pipeline, and the announcement of four labour codes whose notification is awaited.

It is strange that economic writers have not given adequate credit to Prime Minister Narendra Modi for being the most reformist leader since P V Narasimha Rao in 1991.

Narasimha Rao opened the door of reforms and changed the paradigm within which the Indian economy was functioning. He did so under macroeconomic constraints. Modi has taken reforms to the next level by not only delivering tough reforms but ensuring their on-ground, last-mile delivery. He is doing so with a far greater conviction than any other leader.

Even the three farm laws, on which he has taken a U-turn, were bold measures that India needs, but which unfortunately collided with petty and entrenched politics. Such is the nature of politics.

The Survey also showcases a set of satellite images and cartographic techniques that can be, and are being, used as data to deliver policy. From the span of physical and financial infrastructure to net sown area, these images not only tell interesting stories but offer policy windows.

Two sets of six images each that compare the kharif crop cycle in Moga district of Punjab during 2005 and 2021, for instance, show how the kharif sowing cycle has shifted ahead by up to three weeks such that the kharif harvest almost coincides with rabi sowing in November.

The analysis that follows tells us why Delhi has been choking during the months of November and December: “The closing of the gap is a likely factor that encourages farmers to burn stubble and may be related to restrictions on early transplanting of kharif paddy. These restrictions were introduced in 2009 in order to reduce pumping of ground-water but may have had the unintended consequence of damaging air quality.”

The Survey facilitates similar economic arguments around national highways in two images — India’s national highway networks in August 2011 and 2021. A good statistician would be able to map India’s economic growth with the increase in highways.

Wherever there are holes, state governments could investigate and figure out policy points for slower growth rates despite a rising infrastructure.

The two images each, of the Golf Course in Gurugram (2005 and 2021), Bandra-Kurla in Mumbai (2001 and 2021), and the Bagmane Tech Park in Bengaluru (2002 and 2021), tell several stories visually and will drive policy understanding of urbanisation.

When data changes, so does opinion; when data sources change, data streams become faster and real-time; the edifice of holding opinions should change too. This, the Survey argues with elegance.

This piece was first published on ORF and has been republished here with permission.