Economic Survey 2021-22: Supply-Side Reforms By Modi Government Were Distinguishing Feature Of India’s Covid-19 Response

While the countries around the world, especially the developed nations, focused on demand side measures to alleviate the economic stress induced by Covid-19 lockdowns and travel restrictions, India’s response was slightly different. One of the distinguishing features of the government’s toolkit to tackle the problem was supply-side reforms, notes the Economic Survey 2021-22 tabled in the Parliament today.

This consideration was driven by two factors. One, the policymakers realised that while lockdowns and restrictions squeezed demand, there was disruption and breakdown in supply chains too.

Second, the government realised that ‘the post-Covid world will be impacted by a wide variety of factors – changes in technology, consumer behaviour, geo-politics, supply-chains, climate change and so on‘ and all these factors will play out in unpredictable ways with each other. ‘Therefore, the post-Covid economy will not be merely a re-inflation of the pre-Covid economy. Simply building it back with demand measures is not a solution,’ the Survey notes.

So India’s strategy, as far as supply-side measures were concerned, was to initiate reforms that improve flexibility and innovation to deal with the unpredictable post-Covid world.

So it went about launching factor market reforms, deregulating sectors like space, drones, geo-spatial mapping, trade finance factoring, etc and also started process reforms in telecommunications sector.

Legacy issues like retrospective tax were finally resolved while the government also focused on privatisation, monetisation and building physical infrastructure.

Additionally, the definitions of Micro, Small, Medium enterprises were revised, distinction between manufacturing and service MSMEs was removed and registration process was simplified, all of which is expected to help these firms expand economic activity.

To improve the resilience of the economy, the government focused on boosting social infrastructure such as tap water, toilets, basic housing, insurance for the poor, etc.

Under Atmanirbhar Bharat, many sectors were provided support with clear targets for increasing production that will ensure that India becomes self-reliant to a great extent by creating supply chains at home. ‘The focus on economic resilience is a pragmatic recognition of the vagaries of international supply-chains,’ the Survey states.