Friday, Jan 21, 2022 11:45 [IST]
Last Update: Friday, Jan 21, 2022 06:11 [IST]
Amidst the raging third wave of the coronavirus pandemic, the focus is now on whether the economy has the strength and the energy to survive another round of onslaught. As the date for Budget 2022 draws near, speculation is rife about what the finance minister might have to offer. After witnessing a sharp decline last year, the economy is back on track and grew 8.4 percent in the July-September quarter. According to a survey of analysts, India's economy is likely to grow at 9.4 percent this year.
The key focus of the 2022-23 budget should be to support growth by reviving both consumption and investment demand while containing inflation. While inflation largely has external roots, India’s economic agenda should address the supply side bottlenecks, focusing on continued infrastructure expansion particularly for the health sector.
As per NSO’s first advance estimates, India’s real GDP growth in 2021-22 is estimated at 9.2%, that is 30 basis points lower than the RBI and IMF ’s projection at 9.5%. Eventually, due to the adverse economic impact of the ongoing third wave of COVID, India may be able to show a real growth of nearly 9% in the current fiscal year. According to the advance estimates, at the end of 2021-22, the magnitude of GDP in real terms is estimated at Rs 147.5 lakh crore that is only marginally higher than Rs 145.7 lakh crore in 2019-20. Thus, due to the three waves of COVID that India has experienced, nearly two years of real growth in economic activities have been wiped out. Since COVID’s deleterious impact may continue for some more time, it may not be prudent to expect a real growth that is tangibly higher than 7.0%.
The focus of the government therefore should be to support growth by reviving both consumption and investment demand while containing inflation. While inflation largely has external roots, India’s economic agenda should address the supply side bottlenecks, focusing on continued infrastructure expansion particularly for the health sector. The COVID-19 has made people realise the importance of health insurance. The spiralling medical inflation has put many in a fix. Health insurance has become an everyday need in order to protect oneself from uncertainties. The government should consider reducing GST on health insurance premiums. At present, GST is charged at 18 percent which makes the costs prohibitive for some. The reduction of GST will encourage people to purchase health insurance and additional top-up plans to protect themselves from emergencies.
Revival of the economy in 2022-23 would critically depend on containing the adverse economic impact of COVID’s third and subsequent waves to a minimum. In fact, COVID is likely to remain with us over the medium-term. Accordingly, a comprehensive strategy for neutralizing COVID’s deleterious economic impact and minimizing its adverse health impact is called for. This would require a realistic assessment of health infrastructure deficiencies in India and developing a time-bound plan to fill up the gaps. The combined health expenditure of central and state governments in India has languished at about 1% of GDP for many decades, well below the global norm of 3%.
In regard to countering COVID, R&D expenditure in public and private sectors require to be augmented. Both vaccine research and production should be scaled up significantly since India will have to position itself as a global supplier of reliable vaccines. In fact, in the future, India has to focus on not only manufacturing but also supply of health services across the globe by setting up hospitals and teaching centres in many of the underprivileged countries.