Economy : Staying on track

Rajiv Mishra
Timely containment measures, sizeable monetary expansion and protracted fiscal stimulus prevented the economy from slipping into recession in FY 21
The Economic Survey chapter on State of the Economy (SOE) 2020-21 – A Macro View, is a fluent narrative of the Indian economy in a COVID-19 world, first pushing itself to limit contraction of output and subsequently achieving a sharp V-shaped recovery with the help of timely and effective policy interventions by the Government. It further explains the futuristic underpinnings of Government policies that are intended to lift the economy back to its pre-pandemic growth path.  
The SOE describes the policy dilemma of lives versus livelihoods faced globally at the beginning of the pandemic forcing countries to choose between the two. Deploying the containment strategy India initially chose lives but soon enough livelihoods as well once the system to handle the pandemic was in place to hasten the unlocking of the economy. The result was a 23.9 per cent year-on-year contraction of GDP in the first quarter of FY 21 followed by a much smaller shrinkage of 7.5 per cent in the second quarter and thereafter by a steady decline in the pandemic curve. It was the accurate timing of the lockdown and gradual pace of its unlocking that made India resolve the dilemma earlier than others.
The monetary strategy discussed in SOE is built around the measures taken by RBI to support businesses by reducing cost of borrowing and boosting liquidity. The RBI administered cut in policy rates, launched open-market and long-term repo operations, reduced banks’ CRR, raised banks’ borrowing limits, granted term loan moratorium and interest deferral, and enhanced ways and means advances of Governments, among others. The significant cut in policy rates seems to be the standout feature of the strategy as it risked provoking capital flight from the country.
(To be contd)