India rolled out critical supply-side reforms in the aftermath of the Covid outbreak rather than relying entirely on demand management, which distinguished it from other key economies and also marked a contrast with the country’s own response in the wake of the global financial crisis, the Survey pointed out on Monday.
These reforms helped India bridle retail inflation (despite the recent rise, it stood at 5.2% between April and December, against 9.1% in FY09) and bolstered long-term growth prospects as well. Inflation in some of the major economies, meanwhile, shot up sharply (it’s hovering around a 40-year high in the US), as the post-pandemic intervention to stimulate demand backfired in light of serious constraints in the global supply chain ranging from delays in delivery of goods and inadequate container availability to semiconductor chip shortages.
These supply-side reforms include the deregulation of numerous sectors, simplification of processes, removal of legacy issues like ‘retrospective tax’, privatisation and production-linked incentive schemes. The sharp increase in capital spending by the government in FY21 and this fiscal can be “seen both as demand and supply enhancing response as it creates infrastructure capacity for future growth”, the Survey said.
According to the world container index, the freight for 40-feet container shot up from just $1,525 after the pandemic to as much as $9,698 as of January 1.
While lauding India’s supply-side reforms, the Survey also advised against any knee-jerk reactions to price rise of essential commodities like pulses and edible oils through frequent import duty/tariff revisions to provide immediate relief. Instead, it called for a calibrated import policy that will avoid sending wrong signals to domestic producers and create an environment of uncertainty.
It highlighted the need for encouraging farmers to shift from cultivation of rice and wheat to pulses and oilseeds would help ensure that the country is self-reliant in pulses and oilseeds and also assist in reducing import dependence. A step in this direction has been taken by the government where five-year MoUs have been signed with Myanmar, Malawi and Mozambique for long-term imports.
Similarly, it called for further stepping up focus on transportation and storage infrastructure for perishable commodities. “Effective utilisation of Agriculture Infrastructure Fund for investment in viable projects for post-harvest management infrastructure for perishable commodities can help improve agriculture infrastructure in the country. Schemes like Operation Green and Kisan Rail need to be exploited further to protect the interests of the farmers as well as the consumers,” it said.
Faced with Covid-induced challenges, India’s immediate response “was a bouquet of safety-nets to cushion the impact on vulnerable sections of society and the business sector”. It next pushed through a substantial increase in capital expenditure on infrastructure to build back medium-term demand and aggressively implemented supply-side measures to prepare the economy for a sustained long-term expansion, the survey highlighted.