Editor’s note: Our edition is a little late today and will be the same tomorrow—primarily because we have to wait until the early morning to pull together our budget-themed explainers.

What is the Economic Survey?

Since 1964, the survey has been released one day in advance of the budget to offer context to the government’s decision-making. It serves two purposes. One, it offers a  review of the economy over the previous 12 months. Next, it summarises the performance of key development programs—and sums up the government’s policy initiatives. It has been released in two volumes in recent years—one offers a summation while the other offers analysis. But this year, all we got was a relatively slim 413-page single volume.

Big picture critique: The pared down version appears to have skipped on offering any analysis—which is the core criticism of the survey this year. As Mint notes with sarcasm:

“After a long time, we have an Economic Survey that is true to its name—it surveys developments in the economy without either assuming mastery of what it sees or venturing an integrated analysis or policy solutions.”

One likely reason: why there is no big picture thinking may be the fact that the report is typically prepared by the Chief Economic Advisor—a post previously occupied by heavy hitters like ex-RBI governor Raghuram Rajan. But this year, the position has remained empty since December. V Anantha Nageswaran was appointed as CEA just days before the budget. And that may explain why the survey only offers “a compilation of the disparate chapters produced by different teams of sarkari economists tasked with producing summaries of developments in different sectors of the economy.”

Let’s talk growth..

The survey projects a modest 8-8.5% gross domestic product (GDP) growth rate for the Indian economy in 2022-23. This is strikingly cautious considering the previous Economic Survey predicted 11% growth in 2021-22—which has turned out to be closer to 9.2%. 

Key point to note: The survey insists that this year’s numbers show that the impact of the second wave was minimal: “Almost all indicators show that the economic impact of the ‘second wave’ in Q1 (April to June 2021) was much smaller than that experienced during the full lockdown phase.” And yet unlike last March, the government appears reluctant to commit to double-digit growth in the coming year.

A reality check: Even the 9.2% growth rate—calculated before the Omicron wave—is an estimate. And the real number may turn out to be somewhat lower. And it is calculated against the great pandemic year of 2020-2021—when the economy actually shrank by 7.3%. As Quartz points out, even if we dismiss that year as an anomaly, our GDP is expected to only grow by 1.26% compared to the pre-pandemic level of 2019-2020. 

Let’s talk tax revenues…

The government collected a lot of money during the previous year—and its revenues bounced up by 67.2% between April and November 2021. Last year’s union budget had estimated a far more modest 9.6%.

Key point to note: The survey says all this money has created “headroom for taking up additional fiscal policy interventions.” Translation: expect big spends in today’s budget—especially those targeting vote banks in key election states. Economic Times editor Swaminathan Aiyar says:

“I think it will be the election budget. You have to look at every vote bank and none will be left behind. There will be something for industries, something for agriculture, something for small industries, something for services. There will be an attempt to cover the entire gamut of people and therefore it will be a soft budget. It will not be a tough budget attempting to get fiscal discipline back on track.”

So while our fiscal deficit—the difference between what the government earns and spends—may have narrowed to 6.8% of the GDP, it may well balloon again.

Let’s talk inflation…

The survey flags inflation as a worrying issue. Rising prices are becoming a challenge around the world—including the United States. The survey warns “imported inflation”—due to rising global fuel prices—may become a problem. The reality is that our inflation numbers are already alarming:

“[C]onsumer inflation has been inching up for the past few months, fired by high food and fuel prices, and touched 5.9% in December. This is dangerously close to the Reserve Bank of India’s 6% tolerance level. On the other side is the more perilous wholesale price index, or WPI, which affects manufacturers. WPI grew by 13.56% in December 2021, after 14.23% in November; worryingly, it’s been in double-digits for some time now.”

As Vivek Kaul points out, it is important to understand the difference between consumer and wholesale inflation—and those numbers conceal a world of pain. 

Wholesale inflation: WPI measures how much businesses pay for key commodities. Wholesale inflation in November, 2021, was the highest since April 1992—when it was at 13.8%. Apart from the obvious factor like rising fuel prices, here are other examples:

“Take the case of iron ore, a basic ingredient in the making of steel. Its price in November went up 56.4%. Overall, mineral prices went up 20.9%. As for fuel, petrol price rose 85.4%, diesel price 86.1% and LPG price 65.2%.”

But here’s the mystery—the higher cost of making things has not dramatically increased the cost of buying things, i.e. consumer inflation. Or has it?

Consumer inflation: has risen more slowly because certain commodities are given far greater weightage compared to others—when arriving at the CPI numbers. The weight of petrol and diesel in the CPI is limited to around 2.19% and 0.15%. OTOH, food counts for a little over 39%. And food prices have grown more slowly last year. But, but, but that’s only when you compare them to 2020-2021 prices—when they had already galloped upwards. To sum up: “Food prices were very high to start with, and on top of that we have had some more price rise.” 

Key point to note: Vivek Kaul’s excellent analysis reveals why WPI may pinch an affluent person far more than CPI. One big reason: “food constitutes much less than two-fifths of your consumption basket. Put simply, as people earn more, a smaller proportion of their income is spent on food.” We also spend more on things like cabs, autos and plane tickets—directly linked to fuel prices.

Also this: What also matters in an election is the voters’ “perception” of inflation. According to Economic Times, Indian households perceive the current inflation is at a whopping 10.4%—and they expect it will rise past 12% in the months to come.

Let’s talk consumption…

Despite all the worries about inflation, the survey is very upbeat on private consumption—which accounts for 55% of the Indian economy. It claims: “Private consumption is also estimated to have improved significantly to recover 97% of corresponding pre-pandemic output level.” In other words, everything is getting more expensive and yet we expect people to spend more.

But as Mint points out, this upbeat analysis hides clear signs of stress on consumer spending:

• Vehicle sales. Government blames declining numbers of car sales on supply side problems. But the real number to watch is two-wheeler sales—which are at a 10-year low. 
• Also an important indicator: The number of people seeking jobs under the rural employment schemes like MNREGA. That’s still 42% higher than in 2019-20.
• Oddly, as proof of increasing consumption, the survey points to the rising number of digital transactions. But they tell us nothing about whether cash transactions—which still account for most spending—have gone up or down.

So what will Nirmala do? Everyone expects the budget to do more of what the government is already doing—stabilising prices of fuel and essentials like pulses. In a recent survey, 66% complained that they are finding it extremely difficult to manage household expenses these days. More importantly, almost 82% said the budget announcements do affect their decision to vote during assembly and parliamentary elections.

The bottomline: Now we wait for the budget.

Reading list

Indian Express offers a more comprehensive summary of the survey. Mint has an excellent critique of the survey—and what it’s hiding. Also in Mint: results of a C-Voter survey that reveals what Indians want from the budget. For more on how the upcoming elections will influence the budget, read Quartz and this interview with Swaminathan Aiyar. Vivek Kaul is always excellent in breaking down complex topics like inflation. We recommend reading his Easynomics newsletter on how different measures of inflation affect different income groups. Also good: His more recent Deccan Herald column analysing high wholesale inflation.