In an environment of extreme uncertainty, the study highlights the effectiveness of the government’s unique policy response to enable India’s rapid economic recovery.
The chapter on the state of the economy of the Economic Survey 2021-2022 begins with an analysis of preliminary estimates released by the National Statistics Office (NSO) placing India’s real GDP growth in 2021- 22 to 9.2%. At this rate of growth, the survey observes that the Indian economy will recover beyond its pre-pandemic output level of 2019-20. While he credits agriculture for the unwavering support of the economic recovery throughout, he attributes the strong rebound in growth, especially in the second quarter of 2021-22, to the resurgence of manufacturing, the revival of building and releasing pent-up demand for contact-intensive services, where rapid immunization coverage played a crucial role. On the demand side, robust goods exports, resilient services exports, stronger investment thanks to a strong policy focus on investment and infrastructure spending, and a steady recovery in consumption have supported growth. economic recovery.
In an environment of extreme uncertainty, the study highlights the effectiveness of the government’s unique policy response to enable India’s rapid economic recovery. The survey explains India’s economic response to the pandemic in the context of a well-developed intellectual framework, popularly known as the “Barbell” strategy in finance. This strategy calibrates rapid responses and adjustments to a changing situation based on a continuous feedback mechanism and Bayesian updating of information on one side and hedges for worst outcomes on the other. The iterative step of this ‘Barbell’ strategy is the ‘Agile’ approach, which is distinct from the ‘Cascade’ approach which has been the conventional method of developing policy in India and most countries around the world. The waterfall approach involves a detailed initial assessment of the problem, pre-commitments to a rigid action path followed by implementation.
A key enabler of the feedback loop-based Agile approach in India’s policy response is the availability of real-time data. Over the past two years, the government has operated a host of eighty High Frequency Indicators (HFIs) representing industry, services, global trends, macro-stability indicators and several other activities, from sources public and private that allowed constant and iterative monitoring. adaptations under conditions of unprecedented uncertainty. This information includes GST collections, electronic transport bill generations, energy consumption, mobility indicators, automobile sales, rail freight traffic, digital payments, freight movements, collections highway tolls, etc., as reported in both the survey and the Ministry of Finance’s monthly economic reports. These HFIs helped policymakers adapt their responses to a changing situation rather than relying on predefined responses from a cascading framework.
The Study observes, however, that the Agile framework by itself does not solve the problem of uncertainty and remains vulnerable to unforeseen shocks. This is where the hedging leg of the Barbell strategy comes in to provide a cushion against the worst possible outcomes in conditions of massive uncertainty. This explains the uniqueness of India’s economic policy response to Covid-19, which combines the provision of safety nets to cushion the impact on vulnerable sections of society/businesses and a flexible policy response. and iterative based on real-time information.
The survey illustrates the use of the Agile approach by Indian policymakers when choosing to calibrate fiscal stimulus based on a continuous feedback loop provided by HFIs to secure safety nets and retain limited resources when the economy is ready to absorb. As the economy unblocked and activity gradually picked up, the IHFs allowed policymakers to quickly learn early signals of demand recovery and sectors under strain, prompting fiscal injections calibrated whenever necessary. As the economic recovery began to gain momentum, the government responded by injecting significant demand stimulus through infrastructure investment which is now central to reviving economic activity. The study contrasts India’s response with the Keynesian response of providing large fiscal stimulus upfront that many countries opted for, such as the cascade framework.