For Mains: Economic Survey, Concerns Highlighted, Suggestions.
Why in News?
Recently, the Economic Survey 2021-22 was tabled in Parliamentby the Finance Minister soon after the President's address to both Houses of Parliament.
What are the Key Challenges highlighted by Economic Survey 2022?
The Survey notes that supply chain disruptions and slow economic growth have contributed to an increase in inflation. The withdrawal of stimulus in developed economies in the upcoming fiscal (2022-23) is likely to affect capital flows into the country.
The surge in energy, food, non-food commodities, and input prices, supply constraints, disruption of global supply chains, and rising freight costs across the globe stoked global inflation during the year (2021-22).
Stimulus spending in developed economies and pent up demand during the pandemic could lead to “imported inflation” (Inflation due to increases in the prices of import) in India.
Volatility in Capital:
The economic survey noted that major economies had begun the process of withdrawing liquidity that was extended during the pandemic in the form of stimulus checks and relaxed monetary policy to stimulate an economic recovery. Higher inflation has led to a winding down of pandemic related stimulus.
The likely withdrawal of liquidity by major central banks over the next year may also make global capital flows more volatile,” the survey said, noting that this may adversely affect capital flows, putting pressure on India’s exchange rate and slow economic growth.
India’s large and rising imports are also likely to put pressure on India’s exchange rate if capital flows to India decrease as a result of a withdrawal of stimulus in developed countries.
A lack of jobs also continues to be among the primary concerns for the Indian economy with unemployment levels and labour force participation rates remaining worse than pre-pandemic levels.
According to data from the PLFS, while the unemployment rate and labour force participation rate have improved somewhat from the start of the pandemic, they have still not recovered to pre-pandemic levels.
What are the Major Suggestions?
The Survey calls for emphasis on developing a supply-side strategy to deal with the long-term unpredictability of the post-Covid world, emanating mainly from factors such as changes in consumer behaviour, technological developments, geopolitics, climate change, and their potentially unpredictable interactions.
It calls for a “diversified mix of sources of energy of which fossil fuels are an important part”, but simultaneously calls for focus on building storage for intermittent electricity generation from solar PV and wind farms to ensure on-demand energy supply.
It asks the government to focus on the pace of the shift from conventional fossil fuel-based sources, and encourage R&D to ensure an effortless switch to renewable sources of energy.
It also has called for a standardised framework for Cross-Border insolvency as the Insolvency & Bankruptcy Code (IBC) at present does not have a standard instrument to restructure the firms involving cross border jurisdictions leading to several issues.
It proposes use of the Agile approach to policy making with 80 high-frequency indicators in an environment of “extreme uncertainty”.
The approach, used in project management and technology development, assesses outcomes in short iterations while constantly making incremental adjustments. The suggestion is based on the availability of a “wealth of real-time data” to take feedback-based decisions.